Govt to do away with multi-level TDS on software services

Giving respite to the software industry, the government announced that it would remove the complex multi-level system of Tax Deduction at Source (TDS) for the IT sector from July 1, 2012.

As per the notification, no deduction of tax shall be made on payment by a person (transferee) for acquisition of software from another person (transferor), being a resident.

The current mode of TDS levies10 % tax at every level of the software distribution chain, starting from master distributor to retailer and then to the final consumer.

  • Section 194J of the Income Tax Act, 1961, will be amended to avoid multi-level TDS on the IT sector.
  • The above section deals with fees for professional and technical services and covers royalty and non-compete fees. The exemption from multi-level TDS would be applicable in cases where the software is acquired in a subsequent transfer, without any modification.
  • Besides, the exemption will also be entitled in cases where tax has been deducted under 194J on payment for any previous transfer of such software or under Section 195 on payment for any previous transfer of such software from a non-resident

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