{"id":16106,"date":"2023-10-21T11:04:52","date_gmt":"2023-10-21T05:34:52","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=16106"},"modified":"2025-04-03T22:25:12","modified_gmt":"2025-04-03T16:55:12","slug":"withholding-tax","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/withholding-tax\/","title":{"rendered":"What is Withholding Tax?"},"content":{"rendered":"<h3>About Withholding Tax<\/h3>\n<ul>\n<li>Withholding tax\u00a0is withheld or deducted from certain types of income, such as wages, dividends, interest, and royalties,\u00a0when they are paid to the recipient\u00a0(non-resident individual).<\/li>\n<li>It is also\u00a0known as Retention tax.\u00a0<\/li>\n<li>The purpose of withholding tax in India is to\u00a0ensure that the government receives a portion of the income tax owed by the recipient.\u00a0<\/li>\n<li>Withholding tax is\u00a0applicable in the case of payments made to non-resident individuals.<\/li>\n<li>If the income is paid in India, the\u00a0person responsible for payments\u00a0to NRI\u00a0must deduct the withholding tax at the time of payment\u00a0or when the amount is credited to the NRI\u2019s account,\u00a0according to Section 195 of the Income Tax Act.<\/li>\n<li>The amount\u00a0of withholding tax in India depends on the type of income, the\u00a0amount of income earned, and the\u00a0tax laws of the country\u00a0where the income is earned.\u00a0<\/li>\n<li>The\u00a0tax rate is decided\u00a0as prescribed in the Income Tax Act, 1961, or\u00a0Double Taxation Avoidance Agreement (DTAA),\u00a0whichever is lower.<\/li>\n<li>The\u00a0central government of India\u00a0collects this tax.<\/li>\n<li>India has signed DTAAs with many countries\u00a0to\u00a0avoid taxing individuals twice for the same income (in India and the partner country). Currently, India has DTAA treaties with more than 80 countries around the world.<\/li>\n<li>How to determine tax liability for withholding tax?\n<ul>\n<li>To calculate tax liability, it is\u00a0important to know the residential status of any person:\u201cResident Indian\u201d and \u201cNon-Resident Indian\u201d.\u00a0<\/li>\n<li>An individual is\u00a0considered to be a resident in India for tax purposes if he or she satisfies any of the following conditions:<\/li>\n<\/ul>\n<\/li>\n<li>Stays in India\u00a0for 182 days or more during\u00a0the\u00a0financial year, or<\/li>\n<li>Stays in India for 60 days or more during the financial year\u00a0and for 365 days\u00a0or more\u00a0during the 4 years immediately preceding the financial year.\n<ul>\n<li>If an individual does not\u00a0meet either of\u00a0these conditions, he or she will be\u00a0considered a non-resident for tax purposes.<\/li>\n<li>Income earned or received in India:<\/li>\n<\/ul>\n<\/li>\n<li>If an individual is a resident\u00a0of India for tax purposes, he or she\u00a0will be taxed on his or her global income,\u00a0including income earned or received\u00a0in India and outside\u00a0India.<\/li>\n<li>If an individual is a non-resident of India for tax purposes, he or she\u00a0will be taxed only on the income earned\u00a0or received\u00a0in India.\n<ul>\n<li>Citizenship or place of birth:\u00a0<\/li>\n<\/ul>\n<\/li>\n<li>Citizenship or place of birth is\u00a0not a determining factor\u00a0for residential status\u00a0for tax purposes in India.<\/li>\n<li>An individual\u00a0may be a citizen of India or born in India\u00a0but may still be considered a non-resident\u00a0for tax purposes if he or she\u00a0does not meet the criteria\u00a0outlined above.<\/li>\n<\/ul>\n<h2>Difference between Withholding Tax and TDS?<\/h2>\n<ul>\n<li>Withholding Tax: It is the amount that is\u00a0deducted in advance, and the same is\u00a0deposited to the government\u00a0before the amount is paid\u00a0to the payer. It is generally\u00a0applicable on payments to non \u2013 residents, that are foreign transactions.<\/li>\n<li>TDS (Tax Deducted at Source): A person (deductor)\u00a0who is required to make a payment\u00a0of a specific nature to another person (deductee)\u00a0must deduct tax at source and\u00a0send it to the Central Government&#8217;s account. It is\u00a0applicable on specified transactions under the income tax act, 1961 to\u00a0both resident and non-resident.<\/li>\n<li>Both withholding tax and TDS\u00a0serve the same purpose: to ensure that taxes are collected at the source of income. They are used to\u00a0ensure tax compliance and prevent tax evasion.<\/li>\n<\/ul>\n<hr \/>\n<h3>Q1) What is a Double Taxation Avoidance Agreement (DTAA)?<\/h3>\n<p>A Double Taxation Avoidance Agreement (DTAA) is a pact signed by two nations that encourages capital investment, trade in goods and services, and other economic activities between the two nations by preventing International Double Taxation. This suggests that there are agreed-upon tax rates and jurisdictions for certain types of income that originate in one country and are received by tax residents of another country.<\/p>\n<p><strong>Source:<\/strong> <a href=\"https:\/\/www.cnbctv18.com\/business\/companies\/supreme-court-sc-clarifies-companies-cannot-claim-lower-withholding-tax-under-tax-treaties-netherlands-switzerland-france-18106621.htm\" target=\"_blank\" rel=\"nofollow noopener\"><u>SC clarifies companies can\u2019t claim lower withholding tax under tax treaties without notification<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Withholding tax is withheld or deducted from certain types of income, such as wages, dividends, interest, and royalties, when they are paid to the recipient (non-resident individual). <\/p>\n","protected":false},"author":5,"featured_media":16107,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-16106","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-prelims-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/16106","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=16106"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/16106\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/16107"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=16106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=16106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=16106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}