Withholding Taxes on Cross-Border Software
As Indian companies increasingly rely on international SaaS products (AWS, GitHub, Slack), the Income Tax Department has tightened its stance on outward remittances and Tax Deducted at Source (TDS) under Section 195.
Is SaaS considered 'Royalty'?
Historically, the classification of software payments as 'Royalty' or 'Business Income' has been litigious. Following the Supreme Court ruling in Engineering Analysis Centre, standard off-the-shelf software subscriptions may not qualify as royalty. However, the exact application depends heavily on the Double Taxation Avoidance Agreement (DTAA) with the vendor's home country.
Form 15CB and 15CA Requirements
Before remitting funds abroad, companies must obtain a 15CB certificate from a Chartered Accountant certifying the applicable TDS rate. Subsequently, Form 15CA must be filed online. Non-compliance can lead to disallowance of the expense under Section 40(a)(i), artificially inflating your taxable profit.