Heads Up on Withholding Tax if You Are Earning in India

Whether you are a local or a non-resident earning income in India, you are liable for the tax. Apart from the yearly assessment, there is also a withholding tax. Withholding tax is a specific amount deducted from the income payment. The income subjected to withholding tax varies from one country to another. In India, the withholding tax is unique. Find out more from this India withholding tax guide to ensure you get an idea of its extent.

 

India’s Tax Concept

Withholding tax is an amount of money taken from the income paid. The payer deducts the specified amount based on the percentage set by the government. The payer can be a resident or a non-resident. It can be a resident taxpayer and a non-resident taxpayer. Commonly, a non-resident is a foreign national that is residing in India. But, after a definitive duration, a non-resident can become a resident taxpayer. Hence, a resident taxpayer is subjected to regular income tax, such as yearly tax filing. The same cannot be said for a non-resident taxpayer. A non-resident taxpayer is usually subject to withholding tax. Withholding tax can happen anytime, as and when payment is made after services is rendered. Thus withholding tax, efficiently curbs tax evasion from most income earners.

 

Taxpayer Status

During the tenure of working and earning income in India, a foreign national person could have a status of resident or non-resident taxpayer. Naturally, an Indian resident originates from India. But, for a foreign national to obtain resident status, a stay of more than 182 days in the previous year is all they need. If they had accumulated more than 365 days in the past five years, they would qualify to become residents. In this case, their income is subject to personal income tax. If they do not meet the criteria above, they are simply non-residents. Then again, non-residents are subject to withholding tax as provided in the Tax Law. Non-residents income will have a portion withheld and paid to the government through the payer. They are not liable to pay the tax directly to the host government.

 

Conditions of Withholding Tax

Withholding tax applied to non-residents is straightforward. There is no payment threshold limit for withholding tax of non-residents. The only application is the withholding tax rate as according to the type of income payment. The following is the withholding tax rates for payments to non-residents:

There is also a possibility of reduced withholding tax rates due to India signing Double Taxation Avoidance Agreement (DTAA) with other countries. The above rates are applied to non-residents that do not sign a DTAA with India.

 

Conclusion

Non-residents in India are subjected to withholding tax. From the moment they render services, a portion of their pay is to be paid as tax to the government. There are many conditions to how and where withholding taxes rates apply to the payment of income. It seems like withholding tax tedious, but this India withholding tax guide is meant to provide the gist of withholding tax in India. For more information on India’s Taxation, contact us today.

Types of Payment	Withholding Tax Rate (%)
Specified Interest (subject to further conditions)	4 – 5
Non-specified Interest	20
Royalty and technical fees	10
Dividend	20 (paid by foreign companies)
Long Term Capital Gains (subject to conditions)	10 – 20
Services by Individuals	30
Services by Companies	40 of net income