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The advent of double taxation had opened a Pandora's box of trouble for
software dealers across the country. Dealers were expressing concern over
whether software licenses would be treated as a product or service, and there
was much confusion revolving around the same. However, dealers across the
country are now suggesting that more than the double tax it is the tax deducted
at source (TDS) that is pinching them and having a direct impact on their cash
flow (working capital).
Talking about the same, Alok Gupta, CEO of Delhi-based Softmart Solutions
stated that TDS is calculated on the basis of the margins any industry is
earning. According to the assumptions of the tax departments, TDS for software
development companies should be very high (assuming that the industry is earning
margins close to 30-40 percent). However, this margin is being earned by
software development companies and not the software trading companies. He
further added that though TDS can be claimed at the end of the year, it has an
immediate impact on their business.
Sudarshan Ranganathan, CEO, Veeras Infotek, Chennai mentioned that once
Indian Software Dealers Association (ISODA), India's first channel association
for software channel partners, is registered they will file a writ petition. He
further mentioned, “With service tax and sales tax being implemented on the
software licenses there is an undue rise in the prices of software by 30
percent. On the other hand, we earn a margin of two to three percent on the
software licenses sold and the tax (11.33 percent) applicable on the same. 10
percent of every transaction that we make is being supported by us through our
working capital. At this rate within three months we will have no cash to
support the transactions and our business. This will sooner or later hit the
distributors as well.”
He further shared that the only way to escape TDS is to share the projected
profitability and a list of companies they deal with, with the tax department
who will exempt them for those companies. “This is an unlikely option given the
large number of customers we deal with,” he opined.
Harinder Salwan, CEO, Tricom International, Mumbai echoed the same concern.
“As members of ISODA we are looking to hire lawyers to better understand the
issue and raise our concern successfully. By the first week of August we will be
filing a writ petition in the high court.” Page(s) 1
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