Tds to software developers: contract or professional?

Hello,

A Pvt Ltd Company is making a payment of Rs.1 lac to a software developer who is upgrading their software. My question is whether this will be covered by 194C attracting 1%/2% TDS or by 194J attracting 10%. Are there any case laws in this regard?

Replies (2)

payment to a software developer will get covered under 194J.

Development of a software is done by some some software experts who possess requisite expertise and skills, and in many cases certification too. The development of software is thereby covered in professional services and hence is covered by section 194J. Also note that with amendment under section 9 in defintion of royalty any payment for software development or acquisition shall be royalty and allowed under section 37 of the Act. Substance over form is applicable since the true nature of sofware development is professional activity and not performed by novices but qualified people. Hope the reasoning would solve the doubt.

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