Tds liability on software purchase to non resident

Dear All,

We are a service company & purchasing new software upgrade from Germany, in which after payment the vendor shall provide us user name & password to download the software.

Pls guide whether we need to deduct TDS for the said transaction?? if yes under which section (As according to me no services is involved, only purchase of software is involved)

Please provide relevant notification (if available)

Replies (5)
As per Section 195 Any person responsible for paying to a non-resident or to a foreign company any sum by way of Royalty Shall, at the time of credit of such sum or at the time of payment, whichever is earlier, shall deduct TDS thereon at the rates in force Analysis Royalty includes payment received for transfer of all or any right to use computer software. Royalty includes payment received for transfer or granting of license for computer software. On purchase of software from a resident TDS shall be deducted @ 10% under section 194J. On purchase of software from a non-resident TDS shall be deducted under section 195 at the rates in force. (i.e. @ 25% as provided in section 115A or if relevant DTAA provides lower rate than that rate shall apply instead of 25%)

Thanks for your reply.

But the same cannot be termed as royalty, its purely a purchase of software (which doesnot involve any physcial delivery thru customs)

Incase if we request the other party to provide us Software CD and route the same thru custom clearance process can we get away with TDS liability??

 

Downloading software: Payment made by assessee to non-residents for downloading their licenced software amounted to payment of royalty and, thus, assessee was liable to deduct tax at source while making said payment. (Cosmic Circuits (P.) Ltd. V. ITO [2013] 58 SOT 364 (Bangalore))

Incase we request the party to send us a software CD through Customs, and we treat the same as product purchase of software, do v need to deduct TDS on that transaction??

However, as per Sec 115A, rate for Royalty is provided as 10%. So why to deduct TDS @ 25% for payment to non resident for purchase of software?

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