Tds on software purchase
This query is : Resolved
13 July 2012
Is TDS applicable on purchase of software in light of CBDT Notification no. 21/2012 dt. 13.06.2012. In view of this, if we purchase Tally software from a vendor, is TDS applicable? Please guide.
13 July 2012
You may go through the said clause of the circular-
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.
.
Further, the prescribed limit U/s 194J is 30000/- beyond which, the TDS provisions would apply.
.
However, In the light of above, you may obtain a declaration from the vendor of the intent that he has deducted TDS on payment made by him to the Software Co.
.
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.
.
Further, the prescribed limit U/s 194J is 30000/- beyond which, the TDS provisions would apply.
.
However, In the light of above, you may obtain a declaration from the vendor of the intent that he has deducted TDS on payment made by him to the Software Co.
.
17 July 2012
Thanks a lot Sir. It is clear but for more clarification I wish to ask that if we purchase a software like Tally costing less than Rs 30000/- is TDS applicable? Secondly if we purchase a readymade software amounting Rs 1 Lac, is TDS applicable? Does this circular overrules any earlier decision of any authority / High Court for not deducting TDS on purchase of software, if any. Hope you don't mind answering again and clarifying me. Thanks & Regards.
27 July 2012
Please tell if it needs to withhold tax on import of computer software?
27 July 2025
Here’s a detailed explanation about **TDS on software purchase**, including the impact of CBDT Notification No. 21/2012 and the relevant provisions:
---
### 1. **TDS Applicability on Purchase of Software**
* **Nature of software purchase:**
* **If you buy ready-made (off-the-shelf) software** as a product (one-time purchase), it is generally considered a **sale of goods** or **transfer of goods**, not a service.
* **If you buy software licenses or software services** (like customized software, software installation, maintenance, or software as a service), then it is a **service**.
* **TDS under Section 194J (Fees for professional or technical services):**
* TDS applies on **payment for technical services** only if the amount exceeds Rs. 30,000.
* TDS rate is 10% on fees for professional or technical services.
* **However, sale of goods (software sold as a product) is not covered under 194J**.
---
### 2. **CBDT Notification No. 21/2012 dt. 13.06.2012**
* This notification clarified certain ambiguities about TDS on payments for software.
* It generally says: **if payment is made for transfer of a capital asset or goods, TDS under 194J is NOT applicable.**
* But if payment is for technical services or software services, then TDS applies.
---
### 3. **TDS on purchase of Tally software**
* **If Tally is purchased as a product/license (one-time purchase),** this is considered a sale of goods and **TDS under 194J is generally not applicable.**
* But if you are paying annual maintenance fees or service fees to Tally (or any software vendor), TDS under 194J applies if the amount exceeds Rs. 30,000.
---
### 4. **On Import of Computer Software**
* If you are importing software (paying a foreign vendor), **Section 195 applies**.
* TDS has to be deducted on payments made to non-residents for software licensing or technical services.
* Rate depends on applicable DTAA or Income Tax Act provisions (often 10% or higher).
---
### 5. **Answer to Your Specific Questions**
| Scenario | Is TDS Applicable? | Relevant Section/Explanation |
| ------------------------------------------------- | ------------------------------- | ------------------------------------------------------------ |
| Purchase of Tally software Rs. 30,000 | TDS applicable under 194J on technical/professional services |
| Import of software license from foreign vendor | Yes | TDS under Section 195 applicable |
---
### 6. **Does this notification override earlier rulings?**
* Yes, CBDT notification clarified that **purchase of software as goods is not liable for TDS under 194J.**
* Earlier, some interpretations were inconsistent, but now this clarification is accepted.
---
### **Summary:**
* **Buying software as a product/license → No TDS under 194J.**
* **Paying for software services (customization, maintenance, consulting) → TDS applicable if > Rs 30,000.**
* **For foreign software payments → TDS under Section 195 applies.**
---
If you want, I can help draft a checklist or a TDS deduction flow for your company based on your software purchase type. Would that help?
---
### 1. **TDS Applicability on Purchase of Software**
* **Nature of software purchase:**
* **If you buy ready-made (off-the-shelf) software** as a product (one-time purchase), it is generally considered a **sale of goods** or **transfer of goods**, not a service.
* **If you buy software licenses or software services** (like customized software, software installation, maintenance, or software as a service), then it is a **service**.
* **TDS under Section 194J (Fees for professional or technical services):**
* TDS applies on **payment for technical services** only if the amount exceeds Rs. 30,000.
* TDS rate is 10% on fees for professional or technical services.
* **However, sale of goods (software sold as a product) is not covered under 194J**.
---
### 2. **CBDT Notification No. 21/2012 dt. 13.06.2012**
* This notification clarified certain ambiguities about TDS on payments for software.
* It generally says: **if payment is made for transfer of a capital asset or goods, TDS under 194J is NOT applicable.**
* But if payment is for technical services or software services, then TDS applies.
---
### 3. **TDS on purchase of Tally software**
* **If Tally is purchased as a product/license (one-time purchase),** this is considered a sale of goods and **TDS under 194J is generally not applicable.**
* But if you are paying annual maintenance fees or service fees to Tally (or any software vendor), TDS under 194J applies if the amount exceeds Rs. 30,000.
---
### 4. **On Import of Computer Software**
* If you are importing software (paying a foreign vendor), **Section 195 applies**.
* TDS has to be deducted on payments made to non-residents for software licensing or technical services.
* Rate depends on applicable DTAA or Income Tax Act provisions (often 10% or higher).
---
### 5. **Answer to Your Specific Questions**
| Scenario | Is TDS Applicable? | Relevant Section/Explanation |
| ------------------------------------------------- | ------------------------------- | ------------------------------------------------------------ |
| Purchase of Tally software Rs. 30,000 | TDS applicable under 194J on technical/professional services |
| Import of software license from foreign vendor | Yes | TDS under Section 195 applicable |
---
### 6. **Does this notification override earlier rulings?**
* Yes, CBDT notification clarified that **purchase of software as goods is not liable for TDS under 194J.**
* Earlier, some interpretations were inconsistent, but now this clarification is accepted.
---
### **Summary:**
* **Buying software as a product/license → No TDS under 194J.**
* **Paying for software services (customization, maintenance, consulting) → TDS applicable if > Rs 30,000.**
* **For foreign software payments → TDS under Section 195 applies.**
---
If you want, I can help draft a checklist or a TDS deduction flow for your company based on your software purchase type. Would that help?
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