TDS on foreign payment for Soft ware and annual AMC

[Pradeep Jain]

we  have imported INCA Engine Calibration System (Hardware parts) for R&D from ETAS GmbH – Germany, now want to import Operating Software with Licence in CD from ETAS GmbH – Germany Further, as informed by Indrnil Sarkar (R&D) this Licence will be for life time, but we will have to pay annual AMC to the ETAS GmbH – Germany in order to get uninterrupted service support and up-gradation time to time .

We seek your opinion is TDS would be deducted on amount to be paid for purchase of :-

1- Soft ware in CD form

2- payment of Annual AMC

Best Regards

Pradeep Jain

 

[sanjeev bajaj]

In my opinion, TDS has to be deducted on both u/s 195 of the IT Act 1961.

Please read Explanation 4 of clause (vi) of sub section (1) of Section 9 of the Act. This clause clarifies that the payment made of r software is nothing but part & parcel of royalty as defined in Explanation 2 of same.

[Guest]

Dear sir,

In whatever you ask if we analyses your question, you made a TDS on foreign Payment.   

Now we discuss the Law. As per Income Tax Law Section 195 deal Foreign payment. As per Section 206AA,   says if Deductee fail to produce PAN No. TDS shall be deducted higher of followings.

A. At the Rate specified in the related provision of that act ( In your case it will be applicable Section 195 or Rate is !0%)

B. At current rate in force.

C. At rate of 20%.

In as per above mention rule you should deducted 20% TDS, If company does not provided PAN No. If company Provided PAN no. such cases you should deducted only rate of  10 %.

After that company file return for Refund of TDS at end of financial year.

[sanjeev bajaj]

With respect to rate of deduction of tax on royalty, we have to look the followings:

 1. May be u/s 115A of the IT Act

2. According to rates as per Part II of Schedule 1 of the Finance Act

3 As per DTAA of the concerned country in force.

 Further , if no PAN is provided then minimum @ 20%

 

AI Summary

Clarification on TDS for foreign software payments and AMC: Deduct under Section 195 as royalty, PAN affects rate. A discussion on a forum addresses the issue of tax deduction at source (TDS) for foreign payments related to software and annual maintenance contracts (AMC) with a German company. The inquiry seeks clarity on TDS applicability for purchasing software on CD and annual AMC payments. Respondents advise that TDS should be deducted under Section 195 of the Income Tax Act, treating software payments as royalty. If the foreign company does not provide a Permanent Account Number (PAN), TDS should be deducted at 20%; otherwise, it is 10%. Additional considerations include Section 115A and Double Taxation Avoidance Agreements (DTAA).