Tax Relief to Software Industry

New Notification

The Indian Government has issued a notification on 13 June 2012 ("Notification"), pursuant to which tax will no longer be deducted on multi-level software payments made to a resident, subject to certain conditions discussed below. The new provision will come into force from 1 July 2012.

Background & Budget 2012

The Indian tax laws, until recently, were capable of varying interpretations on characterization of income from software payments in view of the conflicting decisions of the various courts on whether or not payment for use of software is royalty.

The Finance Act, 2012 clarified the above issues by inserting explanations to section 9(i)(vi) of the Income Tax Act, 1961 ("IT Act") with retrospective effect from June 1, 1976 stating that the consideration for use or right to use of computer software is royalty.