Tds on payroll software purchase
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
03 May 2016
Dear Expert,
Kindly guide me whether TDS would be applicable for buying payroll software from Indian Company? Both are indian companies -
Thanks in advance
Kindly guide me whether TDS would be applicable for buying payroll software from Indian Company? Both are indian companies -
Thanks in advance
03 May 2016
no tds is not applicable on purchase of software
NOTIFICATION NO. 21/2012 [F.No.142/10/2012-SO(TPL)] S.O. 1323(E), DATED 13-6-2012
In exercise of the powers conferred by sub-section(1F) of section 197A of the Income-tax Act, 1961 (43 of
1961), the Central Government hereby notifies that no deduction of tax shall be made on the following
specified payment under section 194J of the Act, namely:-
Payment by a person (hereafter referred to as the transferee) for acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where-
(i) the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification,
(ii) tax has been deducted-
(a) under section 194J on payment for any previous transfer of such software;or
(b) under section 195 on payment for any previous transfer of such software from a non-resident, and
(iii) the transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor.
2. This notification shall come in to force from the 1st day of July, 2012.
(J. Saravanan)
Under Secretary(TPL-III)
NOTIFICATION NO. 21/2012 [F.No.142/10/2012-SO(TPL)] S.O. 1323(E), DATED 13-6-2012
In exercise of the powers conferred by sub-section(1F) of section 197A of the Income-tax Act, 1961 (43 of
1961), the Central Government hereby notifies that no deduction of tax shall be made on the following
specified payment under section 194J of the Act, namely:-
Payment by a person (hereafter referred to as the transferee) for acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where-
(i) the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification,
(ii) tax has been deducted-
(a) under section 194J on payment for any previous transfer of such software;or
(b) under section 195 on payment for any previous transfer of such software from a non-resident, and
(iii) the transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor.
2. This notification shall come in to force from the 1st day of July, 2012.
(J. Saravanan)
Under Secretary(TPL-III)
04 May 2016
If you are using software for your own business purpose, TDS would be deducted. However, if it's for subsequent sale without any modifications, no TDS deductible as per the circular mentioned in previous reply. For any further query, you may write us to info@wealth4india.com or call us @9818167102. Alternatively, you may request call back @ www.wealth4india.com
Thanks...
Querist : Anonymous
Querist :
Anonymous
(Querist)
04 May 2016
Dear Expert,
We are buying software from Indian company and we are also indian company. We are buying payroll processing software so TDS would be deducted?/?? under which section and at what rate?
Thanks in advance
We are buying software from Indian company and we are also indian company. We are buying payroll processing software so TDS would be deducted?/?? under which section and at what rate?
Thanks in advance
04 May 2016
TDS is required to be deducted U/S 194J
Querist : Anonymous
Querist :
Anonymous
(Querist)
04 May 2016
which section and what rate?? Many thanks for your reply.
27 July 2025
Here’s a clear explanation regarding **TDS on purchase of payroll software from an Indian company**:
---
### Is TDS applicable on purchase of software?
* **Generally, TDS under Section 194J (fees for professional or technical services) is applicable on payments for software services** such as licensing, development, customization, or software maintenance.
* However, **if you are purchasing software as a product/license (a one-time purchase without modification or ongoing services), it is considered a sale of goods and TDS is generally NOT applicable.**
---
### Important notification to note:
**Notification No. 21/2012 dated 13-06-2012** states:
* No TDS shall be deducted on subsequent transfer of software **if it is transferred without any modification**, and
* Tax has already been deducted on any previous transfer of such software (either under section 194J or 195), and
* The buyer obtains a declaration from the seller confirming TDS deduction and the seller’s PAN.
---
### Your case: Payroll Processing Software purchase between Indian companies
* **If you are purchasing software as a one-time product/license (without services or customization), generally no TDS is deductible.**
* **If the payment is for software services like customization, support, or maintenance, TDS u/s 194J @ 10% applies.**
---
### Summary table:
| Scenario | TDS Applicability | Section | Rate |
| ----------------------------------------------------------------------- | ----------------- | ------- | ---- |
| Purchase of software product/license | No | N/A | N/A |
| Payment for software services (customization, maintenance, support) | Yes | 194J | 10% |
| Subsequent transfer of software without modification (with declaration) | No | N/A | N/A |
---
### What you should do:
* Check the **nature of payment** on your invoice — whether it’s for software product purchase or software services.
* If it’s product purchase/license, no TDS deduction.
* If it’s service (customization/maintenance), deduct TDS u/s 194J @ 10%.
---
Would you like me to help draft the declaration format to be obtained from the seller for no TDS on subsequent transfer?
---
### Is TDS applicable on purchase of software?
* **Generally, TDS under Section 194J (fees for professional or technical services) is applicable on payments for software services** such as licensing, development, customization, or software maintenance.
* However, **if you are purchasing software as a product/license (a one-time purchase without modification or ongoing services), it is considered a sale of goods and TDS is generally NOT applicable.**
---
### Important notification to note:
**Notification No. 21/2012 dated 13-06-2012** states:
* No TDS shall be deducted on subsequent transfer of software **if it is transferred without any modification**, and
* Tax has already been deducted on any previous transfer of such software (either under section 194J or 195), and
* The buyer obtains a declaration from the seller confirming TDS deduction and the seller’s PAN.
---
### Your case: Payroll Processing Software purchase between Indian companies
* **If you are purchasing software as a one-time product/license (without services or customization), generally no TDS is deductible.**
* **If the payment is for software services like customization, support, or maintenance, TDS u/s 194J @ 10% applies.**
---
### Summary table:
| Scenario | TDS Applicability | Section | Rate |
| ----------------------------------------------------------------------- | ----------------- | ------- | ---- |
| Purchase of software product/license | No | N/A | N/A |
| Payment for software services (customization, maintenance, support) | Yes | 194J | 10% |
| Subsequent transfer of software without modification (with declaration) | No | N/A | N/A |
---
### What you should do:
* Check the **nature of payment** on your invoice — whether it’s for software product purchase or software services.
* If it’s product purchase/license, no TDS deduction.
* If it’s service (customization/maintenance), deduct TDS u/s 194J @ 10%.
---
Would you like me to help draft the declaration format to be obtained from the seller for no TDS on subsequent transfer?
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