- Standard software licences and SaaS from a foreign vendor with no Indian PE: generally no TDS under treaty.
- Keep the vendor's TRC and Form 41; file Forms 145/146 (formerly 15CA/15CB) where required.
- Customised software, technical services or an Indian PE can change the answer; equalisation levy has been abolished.
Short answer
Why: the Supreme Court software ruling
In Engineering Analysis Centre of Excellence v CIT (2 March 2021), the Supreme Court held that paying for the use of software under an end-user licence or a distribution agreement is not a payment for the use of copyright, so it is not “royalty” under India’s tax treaties. Without royalty, and without a permanent establishment in India, the foreign vendor’s income is not taxable in India, and there is nothing to deduct tax from.
Which payments are different
| Payment | Usual position |
|---|---|
| Standard licence or SaaS subscription (cloud, CRM, productivity, design) | Generally not taxable in India under treaty; no TDS with TRC and Form 41 |
| Software customised for you, or with source-code or copyright rights transferred | May be royalty; check the treaty rate |
| Implementation, consulting or support by the vendor’s people | May be fees for technical services; some treaties (for example US, UK, Singapore) tax these only if they “make available” know-how |
| Vendor has an office, staff or dependent agent in India | Possible permanent establishment; TDS may apply |
Equalisation levy is gone
The 2% equalisation levy on e-commerce supplies was abolished from 1 August 2024, and the 6% levy on online advertising from 1 April 2025. There is no separate levy to deduct on these payments now.
What to do, step by step
- Classify the payment: licence, subscription, service or customised software.
- Collect from the vendor: tax residency certificate, Form 41 (they file it online, no PAN needed) and a no-PE declaration.
- If not taxable: no TDS; file Form 145 (formerly 15CA) and get Form 146 (formerly 15CB) where required by the remittance rules and your bank.
- If taxable: deduct under section 393(2) of the Income-tax Act, 2025 (formerly 195) at the treaty or Act rate, deposit it, report it in Form 144 (formerly 27Q) and issue Form 131.
- GST: a GST-registered business importing online services pays GST under reverse charge and can usually claim the input credit.
Related: TDS on payments to non-residents, Form 41 and no-PE declaration and GST on foreign SaaS.
Sources
- ITAT Online: Engineering Analysis Centre of Excellence v CIT (Supreme Court, 2 March 2021), full text
- Income Tax Department: Form 41 FAQs
- Income-tax e-filing portal
Frequently asked questions
Is TDS required on payment to a foreign software company?
Do I need to deduct TDS on AWS or Microsoft subscriptions paid abroad?
Is equalisation levy still payable on foreign software or ads?
Is GST payable on SaaS bought from a foreign company?
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.