TDS on sale of Software Product

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This query is : Resolved

Sapan Kumar (Querist)

02 February 2009 We are purchasing some software lisences from abrod and installing the same to our customer site in India as a part of implimentation.
1.Whether Service Tax is applicable for the same when we are billing to the customer?
2. Whether the customer should deduct the TDS on advance payment or full payment towards the sale of the same?
Kindly give your expert opinion on this

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)

02 February 2009 As per the service tax notification the servgices rendered until the goods are sold are treated as sales and servie tax is not applicable.

Only if you provide new service after sales then service tax is applicable.

Your customer need not deduct tax at source.

Sapan Kumar

Sapan Kumar (Querist)

03 February 2009

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

27 July 2025 Here’s a clear breakdown of your queries on **TDS and Service Tax on sale of software licenses from abroad with onsite implementation in India**:

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### 1️⃣ **Is Service Tax applicable when billing customer in India for foreign software licenses + implementation?**

* **Software license supply from abroad + onsite implementation in India** can be classified as **import of services**.
* **Service Tax (pre-GST era, now replaced by IGST under GST)** is generally applicable on **imported services**.
* Under Service Tax regime (before GST rollout in 2017), the **recipient in India is liable to pay Service Tax under reverse charge mechanism (RCM)** on import of services.
* So **if you as supplier are billing your Indian customer**, the customer may have to pay Service Tax on reverse charge basis on the imported service part.
* If the implementation is done **by you in India** and software is sold, then **Service Tax may apply on the implementation/service portion**, but not on sale of software license (which may be treated as sale of goods or intangible property).
* Post GST (from 2017), **Integrated GST (IGST)** applies on import of services.

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### 2️⃣ **Should customer deduct TDS on advance payment or full payment?**

* **TDS is deductible at the time of payment or credit, whichever is earlier**.
* If the customer makes an **advance payment**, TDS should be deducted at that time on the amount paid.
* Similarly, if the full payment is made later, TDS must be deducted then.
* The **TDS rate applicable depends on the nature of payment:**

* If the payment is for **royalty or technical services** to a foreign supplier, then TDS under Section 195 applies.
* The rate varies based on the **Double Taxation Avoidance Agreement (DTAA)** between India and supplier’s country.

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### Summary:

| Question | Answer |
| --------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Is Service Tax applicable on billing Indian customer for foreign software license + implementation? | Yes, under reverse charge on import of service (pre-GST), now IGST under GST. Implementation services may attract service tax/IGST; license may be treated differently. |
| Should customer deduct TDS on advance payment or full payment? | TDS must be deducted **at the time of payment or credit**, whichever is earlier. So yes, on advance payment too. |

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If you want, I can help check the latest GST implications or guide you on TDS section & rates under Section 195 for your specific case. Need that?

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