Is TDS deducted on a payment to a foreign company for software or services?
Category
Non-resident & Form 27Q
Answered by
A CA firm
Bottom line
It depends on whether the payment is taxable in India as royalty or fees for technical services under the Act and the DTAA — if it is, deduct under Section 195; many standard software purchases are not royalty after recent Supreme Court rulings.TDS under Section 195 applies only if the payment is chargeable to tax in India. Payments that qualify as royalty or fees for technical services are taxable and attract TDS at Act/DTAA rates.
Following the Supreme Court's Engineering Analysis ruling, payments for off-the-shelf/shrink-wrapped software are generally not royalty and may not attract TDS, but customised software, cloud services and technical support need a case-by-case view under the relevant DTAA. When in doubt, a Form 15CB review is advisable.
General information for FY 2026-27 under the Income-tax Act 2025, not advice on your specific case. Verify against the latest law or ask a CA before acting.