Conditions for no deduction of TDS under section 194J for Acquisition of Software

We often find ourselves in confusion in respect of TDS deduction on various expenses in our day to day business operations, one of such situations is a purchase of software and applicability of TDS on purchase of Software.

As per Ministry of Finance NOTIFICATION NO. 21/2012 [F.No.142/10/2012-SO(TPL)] S.O. 1323(E), DATED 13-6-2012

The Government has notified that no deduction of tax shall be made on the following specified payment under section 194J of the Income Tax  Act, namely:-

Payment by a person (hereafter referred to as the transferee) for acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where-

  • the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification,
  •  tax has been deducted-

  (a) under section 194J on payment for any previous transfer of such software; or  

 (b) under section 195 on payment for any previous transfer of such software from a non-resident, and

(iii)         the transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor.

So it is advisable to check these conditions and obtain declaration along with PAN as mentioned above before you decide not to deduct TDS for Software Acquisition.

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