In a big relief to the software industry, the government on Thursday said it would do away with the complex multi-level system of Tax Deduction at Source (TDS) for the sector from July 1.
“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 finance ministry said in a notification.
Under the current structure, TDS of 10 per cent is levied at every level of the software distribution chain from master distributor to retailer and then to the final consumer.
Responding to the long-standing demand of the sector, Finance Minister Pranab Mukherjee had last week said Section 194J of the Income Tax Act, 1961, would be amended to avoid multi-level TDS on the information technology sector.
Section 194(J) of the I-T Act 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 provided 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.