TDS deduction on purchase of Software licence

U/s 194J @ 10% as this would amount to fees for technical services.

Regards,

Manoj

Yes. Tds is applicable at 10% under section 194J

In due reference of the notification No. 21/2012 dated 13-6-
2012 issued by Ministry of Finance (Department of Revenue) (Central Board of Direct Taxes) Govt. Of India
which will be effective from 1st July 2012 that no TDS will be deducted on the sales of all (Both Downloaded or
Physical ) Software by the reseller or end user if the transferor gives the declaration that the TDS has been
deducted under section 195 or 194J of the income tax act on the invoice and the same is acquired by the transferee
in subsequent transfer and transferor has transferred the software without any modification. This is being
elaborated under different categories as mentioned below.
1. Packaged Software’s / Box Software’s
On the sale of these software’s only VAT is being charged on the invoice but due to the recent budget
notification these software’s were again fall into the category of Royalty and subject to TDS under section
194(J) of Income Tax Act but with this notification, this condition will be waived off and hence no TDS will
be deducted on the bill Value
2. Downloaded Software’s
Here both service tax and VAT is being charged while sale of these software but now with the above
provision this will also come into the same category as mentioned above in point no. 1 and no TDS will be
deducted.

Query is clear that software purchase from Indian company. Hence section 195 has no relevance.

Generally, the transaction is applicable for TDS. However as per above notification, you can skip tds deduction if satisfying the conditions.

Also, the notification covers purchase both cases - purchase from Indian Co. ( 194J ) and from abroad ( 195 )

So my reply was replicating the notification in all respects.

 

👍🏻👍🏻🌹

I think here TDS is not applicable.

What about subsequent renewal of software - TDS is applicable or not?

From what I understand, TDS deduction on purchase of a software licence can vary depending on the country’s tax rules and whether it’s treated as royalty, service, or a product purchase. It’s always better to confirm the exact classification with a tax advisor or accountant since it can change the withholding obligation.

In many cases, businesses also consult a ruby on rails development services company or similar software vendors to clarify how licensing and billing is structured for compliance purposes, especially when dealing with international software purchases.

Make sure you check your local Income Tax / TDS guidelines so you apply the correct deduction rate.

TDS on software licence purchases depends on HOW the software is supplied. CBDT circulars and settled case law have drawn a clear line.

NO TDS applies when:
- You buy a packaged/shrink-wrap software product off-the-shelf (standard product, no customisation) - treated as goods, not a service
- Standard SaaS subscripttion with no customisation (settled after CBDT Circular 5/2010)

TDS UNDER SECTION 393 (old 194J) at 10% applies when:
- Vendor writes custom software for you or significantly customises it for your use
- You pay for technical services bundled with the licence (implementation, integration, custom AMC)

TDS at 2% under old 194C (now Section 392) may apply if software is part of a works contract.

Practical test: if you can buy the exact same software from any other vendor unchanged, it is likely a product (no TDS). If the vendor built or customised it specifically for you, TDS under Section 393 at 10% applies.

This [TDS Section 393 guide](https://taxgarden.in/blog/income-tax-act-2025-section-393-tds-new-numbers-old-194c-194j-194q) covers updated section numbers under ITA 2025 and their mapping to old 194J, 194C, and 194Q.