Announcement by Finance Minister in Lok Sabha on 7-9-1990 regarding deduction of tax at source from payments in respect of systems software

1. In his statement made in the Lok Sabha on September 7, 1990 the Finance Minister had, inter alia, announced :

“At present, customs duty is levied on the value of computer software by treating it as a commodity import. The non-resident licenser or seller is also subjected to income-tax on royalty payment for licensing of the software. To avoid this dual levy for exporters, Government has decided that lump sum payment for systems software supplied by the manufacturer along with the hardware itself would be subjected only to customs duty and not to income-tax. Application software forming part of an approved software export scheme would be subjected only to income-tax on the licenser or seller.”

2. It has been decided that the concession, as above, insofar as it relates to income-tax, will be available in relation to im­ports made during the current financial year itself and subse­quent years. Accordingly, where a taxpayer, engaged in the busi­ness of export of software for computer application, imports any systems software, supplied by the manufacturer of the computer hardware, along with the hardware itself, the lump sum payment made to the foreign supplier for acquisition of any right in relation to, or for use of, such systems software will not be liable to tax in India as payment by way of royalty or otherwise. Such lump sum payments will, henceforth, be allowed to be made without deduction of tax at source under section 195(1) of the Income-tax Act, 1961. Necessary amendment of the law in this  regard will be introduced before Parliament shortly.

Circular : No. 588, dated 2-1-1991.

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