Payment for software & version updates is ‘royalty’ under Income Tax Act: AAR

Stating that differing views by this Authority can be resolved and the matter set at rest only by a decision of the Supreme Court, the Authority on Advance Rulings held that the payment received from the Indian distributor for making available the software product and its version updates by the applicant (Australian company) for the end-user in India is “royalty” within the meaning of the Income-tax Act and the Double Taxation Avoidance Agreement between India and Australia.

Hence the distributor is required to withhold taxes in India at the time of making payments to the applicant in terms of Section 195 of the Income-tax Act at the rate of 10% of the gross amount of royalty.


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