India compliance
TDS on software purchase in India — sections finance actually debates
Indian companies buying software licences ask whether TDS applies under section 194J (fees for technical / professional services), 194Q (purchase of goods) or 195 (non-resident). The answer is fact-specific. This page frames the questions; it does not replace a CA opinion.
TDS on software licence — section 194J is the usual starting point
Many CA notes discuss section 194J of the Income-tax Act when the payment looks like fees for technical services. Other notes treat a packaged licence as purchase of goods (194Q) or a non-resident royalty (195). Your invoice description, whether the supplier is resident, and CBDT circulars matter.
Do not copy a blog “rate” into SAP. Open the current Act and notifications on incometax.gov.in, then take a written CA position for your SKU.
Software purchase approval process — keep the commercial on record
Once tax treatment is decided internally, the commercial should still be competed. MyProcureHub keeps the RFQ, bids and award on an audit trail your finance team can attach to the TDS working papers.
Questions we hear
- What is the TDS rate on software under 194J?
- We will not publish a rate here. 194J has different limbs and the government notifies rates. Ask your CA and check the latest TDS rate chart on the Income Tax Department site.
- Does buying through an Indian reseller change TDS?
- Often yes — a resident reseller GST invoice is a different fact pattern than paying a US vendor. That is why the RFQ should state invoicing entity.
This page is educational, not tax, legal or accounting advice. Classification of software (goods vs services), TDS section, GST rate, HSN/SAC and input credit depend on your facts and the latest CBDT / GST notifications. Confirm with your Chartered Accountant before you book a purchase.
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