The finance ministry will soon clarify on the issue of whether payments made for purchase of software should be classified as royalty or as sales price.
Presently, the government treats such payment as royalty but the member countries of the Organisation of Economic Cooperation and Development treat it as sales price.
On account of the difference of treatment of such payments the finance ministry had referred the issue to the Emerging Issues Taskforce Committee, which has submitted its report.
"We are considering their recommendations and will take a decision soon," an official said.
While Indian software companies want such payments to be treated as sales prices, the definition of royalty as per the Income-Tax Act as well as under the Double Taxation Avoidance Treaty clearly states that payment made for use of a process is royalty.
At the same time payment made for use of a literary work is also treated as royalty and under the Copyright Act, software is a literary work.
"One view is that software is a process and for using a process, the payment that is made is royalty."
"The other view is that use of software as a copyrightable royalty will arise only when copyright related to the software is used in terms of either making copies of the software, or selling it or ditributing it. Since the end- user customer only buys the software which has already been reproduced, what he is paying should be treated as sales price," an official said.
The finance ministry had recently clarified on the issue of taxation of business process outsourcing wherein foreign companies, which outsource to India, would now face similar taxation norms, which are as valid in their own home country.
Hard line on software
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Presently, the government treats payments made for purchase of software as royalty but the member countries of the Organisation of Economic Cooperation and Development treat it as sales price
- On account of the difference of treatment of such payments, the finance ministry had referred the issue to the Emerging Issues Taskforce Committee, which has submitted its report
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