Tds on cusomization of application software


Assistant Accountant

We have purchased an application software (Centralized GST for Multiple Companies for 3 states) in tally ERP9 from a service partner of Tally. Party has put the SAC code as 997331.

we need to deduct TDS?

please advise

 
Reply   
 

1. Two categories of Softwares are sold in the market. Ready to use and licensed Software. 
2. Ready to use softwares are very general, which are commonly used for day to day routine operations. (Small operations). For purchase of this type of software, there is no need for deduction of TDS as there is no royalty as such involved in here. HC has made it clear that software which is of general use will be considered as sale of product and TDS will not be applicable here.   
3. In case of licensed software which basically transfers the right to use the software and payment for the same will be considered as royalty for the use of software and TDS, @ 10% u/s 194J need to be deducted in this case. 
4. In your case, you need to see under which category your application software falls under. Accordingly, TDS need to be deducted. 
Please correct me if the above interpretation has an alternative view. 

 
Reply   
 
Chartered Accountant

Explanation 4 inserted by Finance Act, 2012 in section 9(1)(vi) states as follows:

“Royalty means consideration for the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software(including granting of a license) irrespective of the medium through which such right is transferred.”

In your case, you have paid an amount for acquiring the software (you received the right to use the software). If the amount paid by you exceeds 30,000 rupees individually or aggregate in the financial year, you are liable to deduct TDS @ 10% u/s 194J.

If the same is not deducted, then disallowance u/s 40a(ia) will be made @ 30% will computing the income of that previous year. 

 
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Assistant Accountant

its a GST Module feature which is designed by tally service partner to maintain multiple GST data in single company. ( means same company having two GST registration. but we can maintain data in single company without crating group companies) 

so  can it be called ready made software ?

 
Reply   
 

1. The exclusivity matters in here. The moment we call something as professional or technical services it should be very exclusive to the Assesse. Otherwise, it will not qualify as professional or technical services 
2. In CIT Vs Kotak Securities Ltd where SC turned down calling the online services provided to all members as professional or technical services due to lack of individual requirements ( in this case its company's requirement) and exclusivity, hence it cannot be considered for TDS u/s 194J. 
3. In your case, it does seem like it's been used by the various company and your company was one among them. So you have purchased a software product. Based on the above features it should be a ready-made software. 
4. In my sense, TDS will not be applicable. But it should not be difficult for you to contact your vendor and enquire whether TDS should be deducted or not on the purchase.
Please correct me if the above interpretation has an alternative view. 

 
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