IT Software purchase

The judgment was based on cross appeals filed by the Revenue authorities and assessees alike on the question as to whether money paid by Indian buyers to foreign, “non-resident” software suppliers amounted to royalty and, thus, tax deductible at source under Section 195 of the Income Tax Act.

Justice Nariman reasoned that payment of royalty is made only for exclusive use of copyright of a work.

Here, the computer software is sold in the form of a CD to an Indian buyer under a non-exclusive licence. Again, the Indian buyer only receives the right to use the software. He does not get any copyright on the software. Hence, the amount paid for a computer software from a foreign manufacturer does not qualify as royalty and so tax should not be deducted at the source.

Thank you for the reply Aakash. Also, can you confirm me what can be the purpose code for making the payment.

S0802

TDS should be deducted u/s 195

TDS will not be deducted

Why??

Read my above reply

Ok...

Dear Akarsh,

But what about RCM? Should we pay RCM on the software for it to be allowed as deduction in the books of accounts? Please kindly advise

Regards,

Mahesh