Multi-level TDS on software to go from July 1

K. R. Srivats Updated - June 15, 2012 at 07:25 PM.

Come July 1, software dealers and distributors can heave a sigh of relief.

The Finance Ministry has done away with tax deduction at source (TDS) obligation at each level of the software distribution chain.

This move, which was a long-standing demand of the software industry, would bolster the finances of the software distributors, who operate on thin margins.

Many of them had argued that the multiple-level tax deduction norm hampered their business and reduced their profit margins.

Prior to the latest change, a TDS rate of 10 per cent was applicable at each level of the software distribution chain.

In keeping with the promise made by the Finance Minister Mr Pranab Mukherjee last week, the CBDT has issued a notification that no tax need be deducted at source when payments are made for software purchase from any other resident (transferor). This exemption would be available so long as certain conditions are met.

The TDS exemption would be available only when the software is acquired in subsequent transfer, without any modification. This could mean that the benefit of TDS exemption will not be available for unbranded software or customised software.

Simply put, the transferor should not be the original developer, but someone who had acquired the software from the original developer (from within or outside) or through a chain of dealers (from within India or outside).

The other condition is that the transferor should have deducted tax from the payment made to the original developer or the previous dealer from whom the software was acquired.

The transferee—who acquires the software—should obtain a declaration from the transferor that it has deducted tax from payment made to original developer or previous dealer, from whom such software was acquired.

Tax experts have mixed views with a section feeling that the conditions to be followed may pose some difficulties for those in the software trade.

“The notification provides the relief to the effect of non withholding of taxes on purchase of off-the-shelve software. However, this is coupled with the satisfaction of procedures/conditions for availing of the said relief.

This may create ground level difficulty with respect to compliance of such conditions”, said Mr Amit Singhania, Principal Associate, Amarchand & Mangaldas, a law firm.

krsrivats@thehindu.co.in

Published on June 15, 2012 10:15