Software Payments Cannot be Considered as Royalty Without Transferring Copyright
10 June 2025Nidhi
Software Payments Cannot be Considered as Royalty Without Transferring Copyright
Assume you buy software from a US company with just a basic license for internal use, no extras. Now, the question is, do you need to deduct tax at source (TDS)? Is this payment considered a “royalty” under Indian tax laws? Will the tax department later ask for tax?
A similar situation led to a long litigation, which the Hon’ble Supreme Court finally settled in 2021. The ruling was in favour of taxpayers. However, the applicability of that decision is not automatic. It depends on whether you have followed the rules under the DTAA (Double Taxation Avoidance Agreement) carefully for it to apply.