We earlier covered that the government was mulling removal of multi-level TDS on software product and the good news is that the government has now announced (applicable from July 1st onwards) removal of TDS (tax deduction at source) obligation at each level of the software distribution chain (notified vide NOTIFICATION NO. 21/2012 [F.No.142/10/2012-SO(TPL)] S.O. 1323(E), DATED 13-6-2012.).
So what does this means to software product companies? Naveen from eLagaan shares details:
Generally in the distribution chain the margins used to vary from 2%-30% or so, but with TDS in place, this margin was completely eroded as TDS was deducted on the whole amount of software. Now the distributors can get their margins on sale of software and need not wait till filing of returns and claim of refund from IT Department.
This will be helpful for persons involved in multiple level of distribution for a software. This will not help software developers/ companies who have designed this, neither any customized software(s). Companies like Tally, Anti Virus companies, MS Office etc. who have several tier distribution channel will have better case to push their products among distributors.