Withholding tax means the tax deducted at source by the payer of income.
It is also called retention tax.
In India it is called Tax Deducted at source (TDS)
The term “Withholding tax” is used in United States of America (USA) for TDS.
In withholding tax, tax is deducted at source by the payer of income.
In India it is applicable for various source of income like salary, commission, interest, work contract, profession receipts, rent etc.
The main purpose of withholding tax is early generation of revenue to the government.
For example Mr. A received professional services of Rs. 50,000 from a doctor. In turn, Mr. A will pay Rs. 45000 to the Doctor and retain/deduct Rs. 5000 as withholding tax(TDS). Mr. A will deposit the withholding Tax of Rs. 5000 to the Government. The doctor can take credit of this amount while filing his Income Tax return.
So Government received the amount as and when the transaction incurred. Earlier government had to wait for year end for this Rs.5000.
The second benefit of withholding taxes is that the liability to deduct tax is of the payer. He has to ensure that correct amount at correct time is deposited to the Government account. In this way every transaction comes under income tax radar.
One can always take credit of the withholding tax deducted from his income. In the above example, the doctor can take credit of Rs. 5000 while filing his income tax return. Suppose the doctor total income tax liability comes to Rs. 30000 at the time of filing his income tax return. He will only pay Rs. 25000 after deduction Rs. 5000 since the same is already been deducted from his income and remitted to the government by Mr. A.
The doctor, in the above example, can always check online, the withholding tax deducted from his income in Form 26AS.
Read here for details on Form 26AS.
Withholding tax in India
In India, As per Income tax Act, 1956, Chapter XVII deals with Withholding Tax.
Read here the withholding taxes rates in India for financial year 2015-16.
Read here the withholding taxes rates in India for financial year 2016-17.
Withholding tax due dates
TDS Payment Due Dates
As per Income Tax Act, 1956 the withholding tax deducted is to be paid by 7th day of following month in which TDS has been deducted except for the month of March the due date of payment is 30th April.
TDS Return Due Dates
The quarterly return is also filed for withholding taxes by 15th day of following month of every quarter except for the last quarter of the year ( Jan to March) the due date is 15th May.
| Quarter of year | Form No. 24Q & 26Q | Form No. 27Q | Form No. 27EQ |
| April to June (1st Quarter) | 15th July | 15th July | 15th July |
| July to Sept (2nd Quarter) | 15th Oct | 15th Oct | 15th Oct |
| Oct to Dec (3rd Quarter) | 15th Jan | 15th Jan | 15th Jan |
| Jan to March (4th Quarter) | 15th May | 15th May | 15th May |
The return contains the details of every deductee (doctor in above example) and tax deducted for that quarter.
Read here the list of some of the best TDS software India.
Withholding Tax Certificate / TDS Certificate / Form 16 / Form 16A
The deductor will have to give a TDS certificate to the deductee (Mr. A in above example) for every quarter. The same can be downloaded from TRACES website.
Read here the withholding certificate download due date & penalty under section 203.
Read here how to download the withholding certificate Form 16 & Form 16A form TRACES.
If the withholding tax is not deducted by deductor or, deducted but not paid to the government within due dates then Interest on late payment of TDS is levied.
Read here what is the interest for late payment of TDS under section 201.
In the budget 2016, a new withholding tax has been introduced with the new name “Equalisation Levy” @ 6%.
Read here complete detail on Equlisation levy @6% by budget 2016 in India.
This equalisation levy is basically introduced for non residents.
Read here the complete details of TDS or withholding taxes on payment to non residents.
Hope you have got a basic idea of Withholding taxes in India.
Please comment for any query related to withholding tax.
CA Harish Negi
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Withholding tax in USA and TDS in India, why so?
Just a change of name of withholding taxes to TDS
how we can claim w. tax in india
why government putting withholding tax when we are paying tax. Is it not double taxation ?
It is not double taxation, you can claim credit of tax deducted at the time of filing of your return.
I am a contractor. My annual turnover is 5,00,000. How can I avoid Withholding taxes ?
Hello Harish,
Withholding Tax rate are based on DTAA betwwen two countries. What if there is no DTAA in place? Is there any clause available in Income Tax Act for such cases? If there is no clause for such condition what we should do? Should we deduct and pay to Government while this amount will not be claimed by foreign company as there is no DTAA? Or we should not deduct WHT when we see there is no DTAA established.
HI
Section 91 deals with Countries with which no DTAA agreement exists.-
you need to follow this section and also check section 195 for TDS with section 9.
the applicability of TDS differs case to case.
Hi
I want to understand with holding tax applicable on services i.e. consultancy, engg. services etc from any country.
Can you pl. explain…
Great Article.
sir
what is the difference between Service tax & withholding tax.