Is TDS payable on payments made towards purchase of “apps”?
Before answering this question, let’s look at what TDS is about. In a way, Tax Deducted at Source (TDS) is a type of advance payment of income tax. Further, TDS is required to be deducted on certain specified payments by the person making the payment. TDS was basically introduced with a view to curb concealment of income and fake expenditure claims by an assessee.
Who is required to deduct TDS?
Ask a common man about who is required to deduct TDS and the most likely answer would be ‘only businesses and professionals would be required to deduct TDS’. This is one of the biggest myths floating around as on date. How does one qualify to deduct tax? The Income Tax Department has laid down a slew of procedures that need to be followed: Firstly, you require a TAN (Tax deduction Account Number). Secondly, comes the actual payment of tax within the stipulated due dates. Besides, you need to file TDS returns and give copies of TDS certificates to the person on whose behalf you have deducted tax. Yes, it is a drawn out process.
Now coming to the reason why it is a myth that only businesses and professionals need to pay tax, you must be aware that one is required to deduct TDS for all types of payments made outside India. An exasperating thing about this is that unlike the payments made within India, these payments do not have a maximum limit. Hence, you would be required to deduct TDS even on transactions which have a minimal value (say, Rs 500). Further, the rate of tax would depend upon the type of payment and the tax treaty with the country in which the payment is made.
Ram works for a leading software firm in the country. He, being an ardent gamer, downloads several latest games from the Nuke Games (an American game developer) stable after paying for the same. He has been doing this for the past 3 years. One fine morning, he receives a letter from the Income Tax Department asking him to pay TDS for all the games that he purchased! He is shell-shocked and takes this letter and goes to his auditor for consultation.
So, YES, TDS is payable on payments made towards purchase of apps.