Withholding tax is nothing but the retention tax. It is every taxpayer’s duty or obligation to withhold / retain the tax while paying rent, commission or payment for professional services at rates specified according to the current tax laws. When a person is obligated to pay to a non-resident (other than a company) or to a foreign company, required to deduct income tax there on at the rates in force. Here is an article about “the tax withholding (TDS) on foreign payments.”
Withholding tax is known as TDS Deduction. It is the responsibility of the taxpayer to withhold or deduct tax while making payments under specific heads such as rent, commission, payment in favour of professional services, salaries, contracts etc. These deductions is to be made at the rates that have been specified in the current tax regime of a particular Financial Year.
Under Section 195 of the IT Act, when a taxpayer makes a payment to a foreign company or to an NRI, by way of interest or any other amount other than salary, he shall deduct tax at source at the rate applicable at force.
Under section 195 of the Income Tax Act, the responsibility to deduct income tax on any payment made to a non resident, not being a company or to a foreign company, shall be on the person making such payment.
Related Read: How to file Income Tax Return by NRI in India?
As per the Finance Act, 2020, the rates for withholding tax under section 195 are as follows:
Income |
Rate of Tax Withholding |
Dividend |
20% |
Royalty |
10% |
Technical Services |
10% |
Interest (other than the section 194LB / 194LC / 194LD |
20% |
Important Note: The rates mentioned above shall be liable to be increased by 4% of educational cess and applicable applicable surcharge to corporate / non-corporate assessee. However, the rates mentioned in DTAA should be applied if they are more beneficial.
Suggested Read: Funding of Indian Subsidiary in India.
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