Understanding the concept and how to claim to withholding tax in India

Withholding tax in india is the tax directly deducted by an employee from the employer. This tax is being paid to the government as a part of the individual tax liability. After collecting the tax from the employees, this tax is paid to the central government.

The amount of the tax is deducted based on the income of the individual for the past year. The payment of the person is categorized into various slabs. Whenever the person's income exceeds the minimum limit in that category, the person becomes liable to pay taxes. So to understand how much tax is liable to you, you must first understand the residential status categories.

Who is eligible to Pay Withholding tax?

Withholding tax is sometimes also called Retention tax and the taxable amount is directly deducted at the source by the payer. In this case the payer of the income is liable to deduct the withholding tax before making payments to the payee.

Your residential status in India decides whether you need to pay withholding tax or not. It is actually the income from the property in India or income arising out of the business carried out in India by the non residents. So, the non-resident needs to pay this tax to whoever receives his services in India. The payer of the income to the non resident services is liable to deduct the withholding tax and later pay it to the government of India.

Why are withholding taxes charged?

Withholding tax is a way of generating Early revenue for the government. With these amounts of taxes, the government performs all the development, pays salaries to government officials, etc.

Withholding tax is deducted by the payee for the services he receives, and it is the responsibility of the payee to deposit this tax amount to the government. In this way, the government receives the amount of the tax immediately without having to wait for the entire year.

No one can escape from the withholding tax as the payee compulsorily deducts it. This way, every resident and nonresident in India pays taxes directly received by the government through Payee.

Tax payment is synchronized in two steps. Firstly at the time when the payee deducts the tax and next when he pays the amount to the government.

What is the difference between withholding tax and TDS?

Withholding tax sounds similar to TDS( tax deducted at source), but they both are different terms. In India, withholding tax is applicable for payments to nonresidents (foreign transactions), while TDS is entitled to the residents of India.

Tax deducted at source or TDS is an amount removed at the time of payment to contractors, professionals, etc. While withholding tax is the tax that is deducted before paying the amount to the payee. So if you make payments to the vendors, TDS tax is applicable. On the other hand, withholding tax is applied while making payments to foreign vendors.

Withholding tax applies to services such as commission, rent, interest, technical benefits, salary, income from a business, etc.

What is the Due date for paying Withholding tax?

Withholding tax is to be paid by the 7th of every Month. The exception here is the month of March, where the due date is extended till 30th April.

If you want to file the withholding tax return, it is to be filed quarterly. A withholding tax deduction certificate has to be provided by the payer to the payee quarterly. You can obtain this withholding tax certificate from the traces website. All you need to do is visit this website, enter your details, and download the tax deduction certificate.

As per the amendment formed in 2010, foreign companies dealing with India must register with the Indian Tax Authorities. These foreign companies also require a permanent account number (PAN). It's also mandatory for the company to furnish PAN details to the payer in India. If not done, then the tax might be deducted at higher rates.