A Guide to Understanding How Withholding Taxes Work
How do withholding taxes work and how do you figure out your tax liability? At 3E Accounting, we can assist with your taxation needs through our Withholding Tax Services in India.
What Are Withholding Taxes?
Withholding taxes are the amount that is deducted directly from an employee’s salary. The deductions are done by the employer. The taxes will then be paid to the government and considered part of your tax liability.
Withholding taxes are collected by the Government of India. Withholding taxes are sometimes referred to as retention taxes too. Per the Tax Act Section 195, the payee is responsible for making the payment. In this case, that would be the employer, who will oversee deducting your taxes when it’s time. The payee is responsible for making the payments and crediting it to the non-residential individual’s account.
What Am I Being Taxed on and Why?
Withholding taxes are taxed on sources like:
- Professional services
- Technical services
- Income from business
Withholding taxes benefit the Government as a source of revenue. When deductions are made, the Government receives the sum immediately. Every tax transaction is also scrutinised, so it is important that the payee ensures the correct amount is paid. With this system, it makes it impossible for anyone to evade taxes.
How Much Withholding Taxes Do I Have to Pay?
The sum you pay will depend on what your income is. Taxes are payable based on your residential status. This means your tax sum is based on if you’re a resident or non-resident of India.
Our Withholding Tax Services in India can help you calculate the sum you are liable for. You are considered a tax resident if you stay in India more than 182 days in the previous financial year. In India, the financial year is April to March 31 the following year. You are also considered a tax resident if you stay in India for an aggregate of 60 days of 365 days or more in the four 4 years preceding the previous year. If you don’t meet these conditions, you are considered a non-resident.
Non-tax residents in India are liable for taxes if they earn an income in India from any of the following sources:
- Any salary paid for the services you provide within the country
- Fees paid by a resident to the non-resident
- Royalty paid by a resident to the non-resident
- Income earned from the property in India
- Income from businesses operating in India
The rates paid for withholding taxes are:
- No tax – For royalties
- 10% – Technical services and other services
- 20% – Interest rates paid by domestic companies
- 30% – Individual’s income
- 40% – Companies income
Need Help With Your Taxes?