TDS on customised software from outside India

[Shrikanth Parmarthy]

Dear experts,

Please provide your views on the the following:

1. Is TDS applicable on purchase of customised software by a company from UK. The software is used for calculating discounts and rebates to be given to the customer. The software is tailored made as per the company requirements. The invoice is raised by the supplier in Euros

2. After the purchase year on year the company is paying annual subscription fee for providing access to the software to a certain number of users. Is TDS deductible on the subscription fee to be paid to the vendor in Euro.

AI Summary

TDS on cross border software payments depends on whether payments grant copyrighted rights or include technical services, affecting withholding obligations.
The one time payment for a customized software that grants only non exclusive internal user rights without transfer of copyright does not constitute taxable income in India and need not attract Tax Deduction at Source. Annual subscription fees may be taxable depending on whether they confer mere access or include technical support/customization; absence of treaty documentation or bundled services may convert subscription receipts into taxable royalty or fees for technical services, requiring withholding. Payers should verify contractual rights, obtain residency and corroborative documents, and consider obtaining a withholding certificate if ambiguous.