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Whether TDS is applicable on softwares

27 November 2009

I want to purchase software on which Service Tax and 4%CST is being charged. I want to know whether TDS is deductible on such software or not ?

If yes, than at what rate?

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8 Replies

FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 27 November 2009

It depends on the nature of transaction between you and your vendor.If the software is made according to your specifications,TDS will be apllicable u/s 194J @ 10% from 1.10.2009 only on the cost of services provided and not on the cost of the software.If the software is a readymade software,TDS will not be attracted.

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Aadhyayan (CA Business) (95 Points)
Replied 27 November 2009

Due to changes proposed in the Budget 2009-10 effective Sept 09 all software licensing business falls under service tax net & since Software business falls under service tax, it attracts TDS provisions and it will attract TDS @ 10% u/s 194J

aadhyayan @ gmail.com

(Guest)

I think software supplied from abroad is out of scope of definition of royalty and technical service.

Sunil (Trader) (2611 Points)
Replied 27 November 2009

If you buy a packed software from the shop there is no service tax and no TDS on those. However, if you are asking someone to develop the software for you or you buy the additional licences or get it customised for you and pay for licences, there is service tax as well as TDS.

Therefore, if a company like HP wants to get Windows OS for say 10,000 computers it will buy a customised OEM version from MS and it can istall the same on 10,000 HP computers. Service Tax, VAT and TDS are applicable. When HP sells the computer to you through the shop, it is able to set off VAT 2 VAT, Service Tax to CENVAT as Input. However, when you purchase the PC with software bundled in, you do not have to deduct TDS.

Vishnu, you should provide an exampleof the transaction for which you need clarification. Which software are you purchasing and from whom.

CA Devanshi Gandhi (Ajani) (FCA DISA Mcom CIFRS & LLB) (9060 Points)
Replied 27 November 2009

agree with Mr. Sunil

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Sunil (Trader) (2611 Points)
Replied 27 November 2009

Modified:-

Regarding Taxability of Software that is packed, refer to Circular F/354/189/2009 TRU of 4th November.

There is still no clarity on the issue. The circular states that Normally, cost of a software supplied in a media consists of two cost components, namely,-
a. the cost of the actual software, i.e. set of information which is placed on a media; and
b. the cost of the intellectual property right (IPR) relating thereto.

ITSS is charged on 'b' above.

Notification 22/2009-CE dated 07.07. 2009 of Excise and 80/2009 of customs after this budget 2009 granted exemption in duty to that value which represented service of ITSS on the software.

Obviously now this is the value of taxable service and therefore would be deductible under FTS for TDS u/s 195 if you import the software. However, there is no clarity as to what value will be charged for State VAT. The clarity seems to be only for the CENVAT and that too implementation is half hearted at the Customs level for CVD.

The problem comes up for actual user buying the software from shops in retail (say you buy the Microsoft Windows or Norton Antivirus). Who is the person providing you the taxable service of ITSS. Is it Microsoft / Norton or is it the shopkeeper selling you the software in retail. If the software vendor selling you the software is registered under service tax and collecting from you the Service Tax on ITSS, do TDS on the full software price. TDS is only a mode of collecting the tax and if excess TDS has been done for the recepient, then he gets the refund. The CENVAT circular is applicable only when the ITSS service is for commercial exploitation. What happens at retail level is not known.

It will be interesting to note what happens when we buy PC with software bundled in.Is ITSS charged on the sale of the PC? On PC recently purchased with all bundled Windows Vista etc., I do not see any service tax charged by the retailer for the PC atleast.

Vishnu, you should provide an exampleof the transaction for which you need clarification. Which software are you purchasing and from whom. The matter is still not having adequate clarity.

Shambuling (Assurance executive) (58 Points)
Replied 30 November 2009

As per my knowledge If u purchase the software service tax not is not charged by the vendor and TDS also is not deducted by u for the same. If you ask the vendor to impliment as per your specification,then service tax charged by the vendore for whatever service provided by him and at the same time you should deduct TDS for the same.

Dhanancheziyan (Sr.Managar (Accts & Admn)) (22 Points)
Replied 03 April 2014

Hello,

Wish to clarify the below:

We have purchased a design software from a company in India and for which we received an invoice with CST 5% (No service tax was claimed). Whether TDS is applicable in this case and under what section it is applicable.

Please clarify the above.

Thank you.

Dhana