Hi all, I have started a new technology sales sole proprietorship as I am doing free lancing. So i need to purchase software and security solutions from North American supplier and I need to pay in US$ and CAD$. I want to know about the implication of TDS while making outward remittance and also the purpose code for the payment. Thanking you in anticipation.
9 Replies
CA Aakarsh Jain
(CA)
(10431 Points)
Replied 31 October 2021
The judgment was based on cross appeals filed by the Revenue authorities and assessees alike on the question as to whether money paid by Indian buyers to foreign, “non-resident” software suppliers amounted to royalty and, thus, tax deductible at source under Section 195 of the Income Tax Act.
Justice Nariman reasoned that payment of royalty is made only for exclusive use of copyright of a work.
Here, the computer software is sold in the form of a CD to an Indian buyer under a non-exclusive licence. Again, the Indian buyer only receives the right to use the software. He does not get any copyright on the software. Hence, the amount paid for a computer software from a foreign manufacturer does not qualify as royalty and so tax should not be deducted at the source.
Justice Nariman reasoned that payment of royalty is made only for exclusive use of copyright of a work.
Here, the computer software is sold in the form of a CD to an Indian buyer under a non-exclusive licence. Again, the Indian buyer only receives the right to use the software. He does not get any copyright on the software. Hence, the amount paid for a computer software from a foreign manufacturer does not qualify as royalty and so tax should not be deducted at the source.
Tanveer
(Salaried)
(23 Points)
Replied 31 October 2021
Thank you for the reply Aakash. Also, can you confirm me what can be the purpose code for making the payment.
CA. Sourav Sarkar
(Chartered Accountant )
(24583 Points)
Replied 31 October 2021
TDS should be deducted u/s 195
mahesh
(2 Points)
Replied 10 May 2023
Dear Akarsh,
But what about RCM? Should we pay RCM on the software for it to be allowed as deduction in the books of accounts? Please kindly advise
Regards,
Mahesh
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