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The Union Finance Minister, Mr Pranab Mukherjee, said on Wednesday that packaged software makers and distributors will henceforth be taxed only once.
Bone of contention
He said that his Ministry has issued a circular to avoid TDS, which earlier was subject to 3-4 levels of taxation. This will come as a huge relief to packaged software distributors and vendors of companies such as Microsoft, Adobe or Symantec.
Also, it will give an additional boost to use of software in the country. Nasscom had gone to the government a few months back and its bone of contention was that the software was not only used by firms but by individuals.
According to industry watchers, a product could not be sold at its actual cost or MRP as TDS was deducted at various levels – from wholesale retailer to reseller.
Some treated software as service or goods and in some States as both. This resulted companies to pay royalty in different ways in different States as VAT and service tax differs across States (VAT at 3-4 per cent and service tax at 12.5-13 per cent) and are obliged to pay taxes under Section 194 J.
That also led to many dealers in small town not accepting to sell such products in smaller towns and they were happy selling hardware products such as mobile phones as there they had to pay only one-time tax.
Hailed by industry
“Typically, there are three-four levels of channels through which these products reach the end consumers and in that process raises the value. The companies also end up getting only three-five per cent margin and that was not possible for the industry as almost 40 per cent of the value of a product cut through TDS,” said Mr Som Mittal, President, Nasscom.
Others welcomed the move and according to Mr Sujit Sircar, CFO iGate, “this shores up investor confidence and removes ambiguity in State policies for the IT industry.”
Mr Mukherjee added that the decision was taken on the advice of group formed to resolve issue in area of transfer pricing and international taxation. The group along with Nasscom had held its first meeting on May 25 and approved the circular to avoid multilevel TDS on software.
>venkatesh.ganesh@thehindu.co.in
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