Import regulations on software import through Internet

Arvind Vaze (Team Lead - Accounts and Finance) (27 Points)
Replied 04 December 2009

It is better to take the import export code. it is a week job to take the import export code and cost you not more than 3000/-

Invoice is more than enough to make the payment

There is FEMA docs which is using for making the foreign remittances wherein you found the doc called "Form A1" and "Form "A2". when one is importing physical goods then have to submit "Form A1" else "Form A2"

In your case you have to fill "Form A2" which is sufficient for bank

You dont need to intimate the customs dept too

Sunil (Trader) (2611 Points)
Replied 05 December 2009

There is no duty on the software downloaded by the individual for personal use from the Internet even if he pays by credit card. However in your case, even if you do not have to furnish any bill of entry to customs, you take an IEC Code number as it is beneficial in the long run. In your transaction, you have to deduct income tax at source for Fees for Technical Services for whatever you pay the software vendor abroad. As you are distributing the activation key to customers in India, first you have to pay service Tax for ITSS on whatever you remit abroad. If you have not deducted TDS and paid from your pocket on grossed basis, you have to pay Service tax on that portion also.

You have to collect service tax on ITSS services from your customers when you sell them the activation key as well as VAT as software is also considered as goods. There is dual taxation and that will stay. Moreover, your customer will also deduct TDS from you if they pay you more than 20000 per annum.

You need not give any proof of duty in case you are remitting under form A2 for ITSS (non trade payment). If you pay for physical sofware (packaged or canned) then you have to remit against form A1 and you need IEC code as well as bill of entry for customs. Customs levies CVD only on the Non ITSS portion that suffers service tax. In your case your buyer has already downloaded the software without duty payment. If he remits directly for activation key to foreign company there is no TDS for personal use. However, if he is using it for business he has to bear TDS from his pocket if he did not deduct and he also has to bear service tax on ITSS.

1 Like

KMehta (Director) (35 Points)
Replied 07 December 2009

Thanks for the Reply.

More queries in connection to the feedback provided .

As regarding S. Tax on ITSS, Is it irrespective of the Turnover criteria ( i.e Rs.10 Lacs Turnover) or the Turnover criteria does apply in this case also. My current deal is way below the 10 Lac turnover criteria for registration under S. Tax registration.
Any idea on the TCS % that will be applied?

Prakash (Business) (51 Points)
Replied 19 January 2010

Hi, Mr. Mehta.

I too have a similar case where the person wishes to import 'ready made' software electronically or digitally wherein the company will give Unique Serial Nos. via email along with downloadable link to the importer and importer in turn will sell it electronically too by giving single Unique Srl No. with downloadable link (of the mfr in USA) to the client here in India.

- Is the importer liable to declare to Customs about the digital import and liable to pay any Customs Duty for non-physical/digital import ?

- Is importer liable to collect (from client here) Service Tax and pay the same to the authorities here ?

- Is importer liable to deduct TDS while remitting funds to mfr. in USA even though the USA co. does not have any permanent establishment in India.

Awaiting response.

Thanks

1 Like

KMehta (Director) (35 Points)
Replied 19 January 2010

My replies to your queries above.

No. You are not liable to declare any information to the custom Dept. Nor are you required to pay any Import Duty on the software imported. You are however required to obtain the Import / Export Code to complete the transaction.
The Importer is Liable to pay Service Tax on the Software resold to the client in India. Whether to collect it from the client or not is purely your descretion. Further in case of this transactions , the Minimum Turnover criteria ( Rs. 10 Lacs) is unfortunately not applicable. You will have to pay S. Tax even on value of Rs.10K turnover made by you.
Yes. TCS will have to be deducted from the remitting Funds, irrespective of the Foreign company's stand in India.

Prakash (Business) (51 Points)
Replied 20 January 2010

Thanks for a prompt response.

I slightly differ in view as regards points 2 & 3.

2. There is NO SERVICE offered to the client when the software is sold electronically/digitally. It is a mere BUY-n-SELL transaction like any other 'goods'. So why would Service tax be liable ?

3. Logically no TDS can be cut since it is a goods purchase from a foreign company not having any establishment in India. Hence no tax liability to the Govt. If we cut TDS then how will they recover that amount from the Govt when they are not liable in the first place. Also no company (not having an establishment here) will ever agree to the TDS cut since for them it amounts to getting less than their quote for no fault of theirs. If an end-user buys through credit card then there is no TDS cut, and the same should apply to the reseller too.

KMehta (Director) (35 Points)
Replied 20 January 2010

Sir,

I appreciate your differences as I have passed through the same phase. Unfortunately as per my knowledge and research on the topic I am correct in both the point.

Point No 2. Though there is no service involved in buying and selling however still as per some S. Tax regulation this is applicable. SOme organisation have filed some white paper on this matter to the parliament , no feedback as on date on the matter. I have personally visited S. Tax dept and argued with the Officer over there. he clearly told till the time parliament revokes the regulation , you will have to pay S. tax.
Point 3 , every foreigner will have to pay tax on income earned in India. The sale is happening in India and hence he will be subject to TCS.
The only solution to this matter is let the foreign co sell the software directly to the client and you can take a commision from the foreign co. This way you will escape all the headache of S. tax / TCS etc. and the client will also be saved from additional cost of 15% over the software cost. ( S. tax + Inter state Sales tax if applicable).

Vikrant (Manager) (21 Points)
Replied 03 February 2011

Hi All,

Thank you mehta sir for the information.

My bank is asking for SOFTEX number instead of IEC Code for importing the software via FTP as he says that IEC code is only needed if you are importing Physical goods. Is it so? I have applied for IEC code & the procedure has started.

Also If I send the quoted value through credit card payment mode what about the TDS/TCS?

Please help me ASAP.

purnendu kumar sinha (Accounts Manager) (22 Points)
Replied 11 June 2012

Dear Sir,

can you tell me whether tds is applicable on payment for download software through website.

Ravindra Naik (service) (26 Points)
Replied 30 July 2012

We need to supply one machinery and it requires software to run .This software is being supplied by our vendor based in Germany . This is customised softwrae and without this software the machine will not run He has advised us to download the software through mail . He will give necessary password and steps to download the software

Please advise me whether Customs duty is applicable on this software or not .

I am not selling this software . This software is part of machinery and I am getting paid for machinery

Henil Shah (Sr. Account Exicutive) (200 Points)
Replied 10 October 2012

Dear Sir / Madam / Friends,

We are a Software developing Company based in Gandhinagar IT/ITES SEZ. I have a query regarding import of Software through Internet. we have recently purchase a software from US based software company. The US based co. will give us the access code of the software through Email. We will have to download the software from US based companies website through internet by using code nos and install in our system. Further we have received a user manual with CD through post. We have also filed a Form 15CA & Form 15CB. My query is how i cleared this process in SEZ as they asked for a import clearance papers. But actully we had not paid any thing or disclose anywhere regarding this.

Futher, as our unit is in SEZ, we are going to claim a service tax exemption regarding this.

You all requested to please resolve my query at the earliest as the transaction was already done and paper work is pending @ SEZ.

Rama Krishnan (MBA) (571 Points)
Replied 12 October 2012

BELIVE IS THE CURRENT SETTLED LEGAL POSITION ON SOFTWARE IMPORTS ? PL GIVE YOUR VIEWS

SOFTWARE -CUSTOMS &SERVICE TAX APPLICABILITY

CATEGORY OF SOFTWARE

BCD

CVD

SAD

SERVICE TAX

CUSTOMISED SOFTWARE( PHYSICAL IMPORTS IN CD/ DONGLE/ OTHER FORMS)

EXEMPTED

EXEMPTED

12.36% LICENCE VALUE

PACKAGED SOFTWARE( WITH RSP)( PHYSICAL IMPORTS IN CD/ DONGLE/ OTHER FORMS)

EXEMPTED

APPL. UNDER SEC 4A

EXEMPTED IF FOR RETAIL SALE

EXEMPTED

PACKAGED SOFTWARE (WITHOUT RSP)( PHYSICAL IMPORTS IN CD/ DONGLE/ OTHER FORMS)

EXEMPTED

EXE ON RIGHT TO USE VALUE

PAYABLE ON MEDIA VALUE

12.36% LICENCE VALUE

CVD PAYABLE ON MEDIA VALUE

ELECTRONIC DOWNLOAD( BOTH SOFTWARE& RIGHT TO USE LICENCE)

EXEMPTED

EXEMPTED

12.36% LICENCE VALUE

Kiran J (A/C) (2 Points)
Replied 26 May 2023

How to inform the custom department

and what is procedure to inform custom authority?

Import regulations on software import through Internet

13 Replies

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