What is the correct TDS rate to deduct on Microsoft 365 Business Standard monthly subscription 2% under 194J(a) or 10% under 194J(b)?

Question

Subject: Query Regarding Applicable TDS Rate for Microsoft 365 Subscription

Dear Microsoft Support,

I am writing from India. We have taken a monthly subscription to Microsoft 365 Business Standard, and the applicable HSN code is 997331.

We seek clarification on the applicable TDS rate under the Indian Income Tax Act. Specifically, could you please confirm whether TDS is to be deducted at 2% under Section 194J(a) (for technical services) or at 10% under Section 194J(b) (for professional services)?

Your clarification, along with any relevant documentation or classification, would be greatly appreciated for our compliance purposes.

Answer 1

Dear @Shri DB7,

Thank you for your query regarding the Tax Deducted at Source (TDS) applicable to your Microsoft 365 Business Standard monthly subscription under the Indian Income Tax Act. 

Based on current guidance and community discussions, payments made for Microsoft 365 subscriptions are generally classified under technical services, which fall under Section 194J(a) of the Income Tax Act. Therefore, the applicable TDS rate is 2%. 

You can review this here: TDS on MS365 Subscription - Microsoft Q&A 

Please note: 

• This classification is based on the nature of the service provided—software-as-a-service (SaaS) which is considered a technical service. 
• If you are paying via credit/debit card, Microsoft’s billing system does not support automatic TDS deduction. In such cases, you may:  

1. Deposit the TDS manually using Challan ITNS 281. 
2. Obtain Form 16A from the TRACES portal. 
3. Submit the Withholding Tax Credit Form to Microsoft for adjustment. 

You can find the official Microsoft documentation for submitting TDS credit here: Request a credit for Withholding Tax on your account | Microsoft Learn 

If your organization has unique billing arrangements or if further clarification is needed, we recommend contacting Microsoft’s billing support directly via the Microsoft 365 Admin Center. 

We appreciate your attention to compliance and hope this helps. Please let us know if you need further assistance. 

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