TDS on software rental charges

This query is : Resolved

Madhab Chandra Mandal (Querist)
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31 May 2024 A recovery agent uses dialer for calling to customer. Rental charges paid for dialer and software used for calling. Does TDS applicable for such rent if Yes rate of TDS & under which section.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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11 July 2024 Yes, TDS (Tax Deducted at Source) is applicable on rental charges paid for the dialer and software used by the recovery agent for calling customers. Here are the details:

### Applicability of TDS:

1. **Nature of Payment:**
- The payment made for renting the dialer and software is considered a payment for the use of equipment or machinery under the Income Tax Act.

2. **Section 194-I:**
- TDS on rent payments (including equipment rental) is covered under Section 194-I of the Income Tax Act, 1961.
- According to Section 194-I, TDS is required to be deducted at the rate of 2% if the aggregate rent amount exceeds ₹2,40,000 per financial year. If the payee (recipient of rent) does not provide their PAN, the TDS rate increases to 20%.

### Key Points to Consider:

- **Threshold Limit:** If the aggregate rent amount paid or credited during the financial year does not exceed ₹2,40,000, TDS is not required to be deducted.
- **PAN Requirement:** Ensure that the recipient of the rent provides their PAN. If PAN is not provided, TDS should be deducted at a higher rate (20%).
- **Payment to Non-Resident:** If the rental payment is made to a non-resident, different TDS provisions may apply under Section 195.

### Steps to Take:

- **Determine Aggregate Rent Payments:** Calculate the total rental payments made to the provider of the dialer and software.
- **Verify PAN:** Ensure that the recipient has provided their PAN. If not, inform them to provide it to avoid higher TDS deduction.
- **TDS Deduction:** If the aggregate rent payments exceed ₹2,40,000 in the financial year, deduct TDS at 2% on the rent amount paid.
- **Deposit and Compliance:** Deposit the TDS deducted with the government within the specified time frame and issue Form 16A to the recipient with details of TDS deducted.

It's recommended to consult with a tax advisor or a chartered accountant to ensure compliance with TDS provisions and other relevant tax laws based on the specific details of your payments and the nature of the rental agreement.

If you have any more questions or need further clarification, feel free to ask!