Authorities could tweak tax legislation on software program purchases from overseas corporations


The federal government could also be exploring choices to tweak the home tax legislation to beat a current Supreme Court docket judgement that stated funds made by native customers for the acquisition of software program from overseas corporations or distributors can’t be taxed as royalty.

The ruling that disallowed the deduction of tax at supply on such funds would imply that a number of multinationals can now declare lots of of crores of rupees in refunds from the Indian authorities. In keeping with two individuals with direct data of the matter, a proposal is being mentioned to make modifications in home legal guidelines that would permit the tax division to proceed with its present stand.

“Ensuring modifications to Part 90 of the Revenue Tax Act is on the desk,” one of many individuals with direct data of the matter stated. The part basically speaks about India’s tax treaties with different international locations. The federal government might alternatively additionally make modifications to the mental property or copyright rules, he stated. “There’s a mixture of issues that might be achieved. If one might articulate the phrase copyright in Indian tax legal guidelines, then in absence of any definition of the identical idea in tax treaties, home legal guidelines shall prevail,” one other particular person near the event stated.

The SC ruling basically speaks about what’s a copyright and the way or whether or not it may be taxed. Tax specialists say the federal government will discover it arduous to make this transformation and this might result in additional litigation. “The Supreme Court docket judgment on the problem may be very sound and in line with world interpretation of royalties; there isn’t any must make any modification on this regard. Additionally, even when the federal government needs to make modifications, it could not be practicable as one can’t override the tax treaty unilaterally and this won’t stack up within the legislation,” stated Dinesh Kanabar, CEO, Dhruva Advisors.

The SC ruling has gone into particulars of what constitutes copyright. “The quantities paid by resident Indian end-users/distributors to non-resident pc software program producers/suppliers, as consideration for the resale/use of the pc software program via EULAs (end-user license settlement)/distribution agreements, just isn’t the fee of royalty for using copyright within the pc software program, and that the identical doesn’t give rise to any earnings taxable in India,” the ruling stated. Some tax specialists say the federal government could need to watch for this one out because it might renegotiate the tax treaties itself going ahead.

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