Tds on computer software

Please refer the following corcular -

NOTIFICATION NO. 21/2012 [F.No.142/10/2012-SO(TPL)] S.O. 1323(E), DATED 13-6-2012

In exercise of the powers conferred by sub-section(1F) of section 197A of the Income-tax Act, 1961 (43 of
1961), the Central Government hereby notifies that no deduction of tax shall be made on the following
specified payment under section 194J of the Act, namely:-
Payment by a person (hereafter referred to as the transferee) for acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where-
(i) the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification,
(ii) tax has been deducted-
(a) under section 194J on payment for any previous transfer of such software; or
(b) under section 195 on payment for any previous transfer of such software from a non-resident, and
(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.
2. This notification shall come in to force from the 1st day of July, 2012.

To sum up -

- If the seller has sold the software with any midifications - TDS is deductable @ 10% u/s 194 J.
- Buyer is the 1st buyer in the chain - TDS @ 10% u/s sectiom 194 J for eg - M/s xyz has developed the software and is selling it to Mr A. Then Mr A must deduct TDS.
- Payment is made to a Non Resident - TDS deductible
- In case there aren't any modifications, then no TDS provided the conditions under point (ii) above are satisfied.