Corporate Taxation

USA: Welcome Relief from Indian Withholding Tax on Software Payments

In a recent landmark income tax ruling, the Supreme Court of India (“Indian SC”) has delivered a notable victory to nonresident technology companies licensing software into India. In Engineering Analysis Centre of Excellence Private Limited v. CIT, the Indian SC overruled a long standing position of the Indian Revenue Authorities and confirmed that an outbound payment by an Indian resident to a non-Indian based supplier for a copy (or a limited number of copies) of a computer program is not a “royalty,” for purposes of the royalty withholding tax provisions of the U.S. – India Double Tax Treaty. This is welcome news for U.S. software companies who sell license software to Indian customers. This article will discuss the holding in the case, specifically how licensing of software into India does not give rise to Indian withholding tax. This article will also provide proactive steps that you can take to ensure that withholding tax is not erroneously withheld by your Indian customers for software licenses as well as procedures that you can follow in order to claim a refund for prior amounts withheld by your Indian customers. A&M TAXAND and ELP India are here to assist you in taking these proactive steps.

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