Any payer deducting an amount directly from its payee’s earning is referred to as Withholding tax. By law, the payer is obliged to deduct the amount at the time of making the payment on account of a Non-Resident Individual. Let’s learn about withholding taxes in further detail.
What is Withholding tax
Withholding tax is similar to Tax Deducted at Source (TDS). Withholding tax also known as retention tax is another terminology used for TDS. It is deducted by the payer directly from its payee’s earning. This tax is then deposited as part of the Non- resident individual’s tax liability to the Central government of India. The central government of India is an official body to levy and collect taxes.
For better understanding, TDS has to be paid by Residents, and withholding tax is to be paid by Non-resident individuals only on income earned in India.
Example: Mr. Rohan is an NRI and is working as a freelancer with Mr. Shah & Co. in India. Mr. Rohan has earned INR 95000 by providing his services. Now, while making the payment Mr. Shah & Co. will credit INR 90000 to Mr. Rohan’s account and deduct INR 5000 as withholding tax.
Rates of Withholding tax in India
Following are the rates applicable for Non- Resident Indian individuals:
- 20% Interest rate is applicable for dividends paid by domestic companies
- 10% rate is applicable for technical services are charged
- 10% rate is applicable for other services
- Individuals are charged 30% rate of the Income
- Companies are charged 40% rate of the Income
- No tax charged for royalties
Note: The above stated rates are applicable on those countries with whom India does not have a double taxation avoidance agreement.
Process of doing an assessment for Non-resident Indians
Assessment of Non- Resident Indians can be done by an agent or even directly. A person who is considered as ‘agent‘ of a non-resident assessee is as under:
- Employee or trustee of a Non-resident Indian
- Any individual who has any business connection with a Non-resident
- Any person through whom a Non-resident is receiving any income
- Any person who has acquired or purchased any capital asset in India from a Non-resident.
Due date of Filing returns
The returns for withholding of tax are filed quarterly, and it includes details about every payee and amount deducted for that particular quarter.
Following are the dates of filing the returns for every quarter:
| Quarter | Months | Due Dates |
|---|---|---|
| Q1 | April – June | July 15th, 2021 |
| Q2 | July – September | October 15th, 2021 |
| Q3 | October – December | January 15th, 2021 |
| Q4 | January – March | May 15th, 2021 |
Due date of depositing payment
Following are the due dates of making payments of withholding tax:
| Month | End of Quarter | Withholding Tax Payments Due Date – Government | Withholding Tax Payments Due Date – Non- Government |
| January | 31st March | 7th February | 7th February |
| February | 31st March | 7th March | 7th March |
| March | 31st March | 7th April | 30th April |
| April | 30th June | 7th May | 7th May |
| May | 30th June | 7th June | 7th June |
| June | 30th June | 7th July | 7th July |
| July | 30th September | 7th August | 7th August |
| August | 30th September | 7th September | 7th September |
| September | 30th September | 7th October | 7th October |
| October | 31st December | 7th November | 7th November |
| November | 31st December | 7th December | 7th December |
| December | 31st December | 7th January | 7th January |
FAQs
TDS is applicable while making payments to Indian Citizens while Withholding tax is applicable while making payments to foreign individuals.
Following are the rates applicable for Non- Resident Indian individuals:
1. 20% Interest rate is applicable for dividends paid by domestic companies
2. 10% rate is applicable for technical services are charged
3. 10% rate is applicable for other services
4. Individuals are charged a 30% rate of the Income
5. Companies are charged 40% rat of the Income
6 . No tax charged for royalties
Withholding tax payment has to be done on the 7th of every month. While returns are to be filed within 30 days from the ending of every quarter.
Hey @Joe_Fernandes ,
Thank you for reaching out to us!
You need to keep in mind following dates for TDS Return filing:
Penalty Under Section 234E is levied in case you miss out on filling TDS return on time. The penalty of INR 200 per day is levied on the taxpayer till the day on which return is filed. Provided that the amount of Penalty should not exceed the number of TDS payable.
Hope this helps!
Hi @Neel
If you have already filed an online correction return by adding the correct challan details, you should wait for the department to process the same. If your correction gets processed successfully then your demand will get nullified otherwise you can go ahead and file the offline correction.
Hope this helps.
When should TDS be deducted, at the date invoice was issued, at the time of payment, or at the due date of making payment for the invoice?
Hi @phoenix
TDS is to be deducted when a payment is due or when an actual payment is made whichever is earlier.
Hope this helps!
Hi @np16
If your rental income for a year exceeds INR 2,40,000 (INR 1,80,000 till FY 2018-19), TDS is deducted by the tenant. However, if your total income including rent is not taxable then you can submit Form 15G / 15H to the tenant to save yourself from TDS deduction.