In a major benefit to the software sector, the government has decided to do away with complex multi-level system of Tax Deduction at Source (TDS) with effect from July 1.

"The abolition multi-level TDS for software companies will be effective from July 1. The law ministry is vetting the final blueprints of the amendments in the I-T Act," a finance ministry official told PTI.

Under the current structure, TDS of 10 per cent is levied at every level of software distribution chain -- right from master distributor to retailer and then to the final consumer.

Responding to the long-standing demand of the software sector, Finance Minister Pranab Mukherjee had last week said that Section 194 (J) of the Income Tax Act, 1961, would be amended so as to avoid multi-level TDS on information technology sector.

Section 194(J) of the I-T Act deals with fees for professional and technical services and covers royalty and non-compete fees.

Software industry body NASSCOM, which has been long lobbying for this, said the move would benefit the IT sector and improve finances.

The TDS model, it had argued, "was leading to an unsustainable model for software distributors who operate on very low margins."