THE INDIAN SOFTWARE INDUSTRY IS IN DEEP TROUBLE
MORE IMPORTANTLY , NOW IT COULD BE ILLEGAL FOR COMPANIES IN INDIA TO USE WAN LICENCES, SINCE SERVICE TAX IN INDIA WOULD NOT HAVE BEEN PAID ON SERVICES BEING USED IN INDIA
Effective May 16, 2008, with service tax being imposed on sale of software licenses, the question of the TDS provisions being attracted under the provisions of the Income tax Act is very real.
1. As is known, Section 194J of the Income tax Act, after the enactment of the Finance Act, 2007 lays down that, any person, not be ing an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of —
( a ) fees for professional services, or
( b ) fees for technical services,or
(c) royalty, or
(d) any sum referred to in clause (va) of Section 28.
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein.
The Explanation given under Section 194J clarifies that for the purposes of this section, “professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of Section 44AA of this section. The Central Board of Direct Taxes has vide its Notification 3 covered by SO 385(E) dated 4-5-2001 has notified the profession of information technology for purposes of the sub-section.
Given these, it seems clear that transfer of software licenses, now having been notified as a taxable service, would indeed get covered by the provisions of Section 194J and considering the fact that the rate of TDS to be effected is a hefty 10% with effect from June 1, 2007