Interested in financial products


In India, the Central Government has the right to levy and collect taxes based on the income of individuals and entities. Income is generally categorized into various slabs. Whenever it exceeds the minimum threshold limit then it attracts taxes as per the rates decided for various slabs prescribed in the Income Tax Act. Tax liability is decided by calculating the total income earned for the previous year in the current assessment year. Income tax payable by any person is dependent on the residential status of that person.

Withholding taxes are found in practically all tax systems and are widely used in respect of dividends, interest, royalties and similar tax payments. It refers to the tax on income that is imposed at source, i.e. a third party is charged with the task of deducting the tax from certain kinds of payments and remitting that amount to the government.

Withholding tax is also known as retention tax and is the taxpayer’s obligation to withhold tax when paying rent, commission, or payment for professional services at rates specified according to the current tax laws.

Understanding Withholding Tax

Withholding Tax is the obligation of the taxpayer to withhold tax while making payments under specific heads (such as rent, commission, payment for professional services, salaries, contracts, etc.) at the rates that have been specified in the existing tax regime.

Direct Tax Provision - In cases where payments are to be made to Non-Resident Indians, the payer is obligated to deduct at the source. Section 195 of the Income Tax Act, 1961, states that the obligation lies on the person responsible for the payment to deduct taxes at source at the time of payment (or at the time of the credit of the income to Non-Resident Indian’s account).

The Central Government of India is authorized to collect income taxes from everyone whose income exceeds the maximum exemption limit. The rates of taxation are prescribed in the Income Tax Act, and the total tax payable will be calculated on the income of the previous year, to be paid in the year of assessment. The total income of the individual, however, is determined based on his or her residential status in India.

Status of Resident Indian or Non-Resident Indian - The status of Resident Indian or Non-Resident Indian is determined after computing the total duration of the assessee’s stay in India during the preceding financial year. To qualify as a Resident Indian, the assessee must have stayed in India for:

  • 182 days or more in the previous year, or
  • 60 days or more, and has been in India for an aggregate of 365 days or more in the 4 years preceding the previous year.

An individual who does not satisfy either of the above requirements is categorised as a Non-Resident Indian.

Withholding Tax Rates

Mentioned below are the tax rates as applicable to Non-Resident Indians.




Dividends paid by Domestic Companies




Technical Services


Any other services: Individuals

30% of income

Any other services: Companies

40% of the net income

Here are the tax rates for payments by resident companies:

Category of PaymentPayment Limit for Withholding TaxWithholding Tax Rate

Specified types of interest



Non-specified types of interest



Professional or technical services



Commissions and brokerage



Rent of plant, machinery, or equipment



Rent of land, building, or furniture



Contractual payments (except for Individuals / HUF)

Rs.30,000 (single payment)
Rs.75,000 (aggregate payment)


Contractual payments to Individuals / HUF

Rs.30,000 (single payment)
Rs.75,000 (aggregate payment)


Royalty / Fees for technical services



Here are the tax rates for payments to non-resident companies:

Category of PaymentWithholding Tax Rate



Interest on foreign currencies (subject to certain conditions)


Interest on money borrowed in foreign currency under a loan, or through long-term infrastructure bonds (or rupee-denominated bonds) – the period for borrowing is July 2012 to July 2015


Interest on investment in long-term infrastructure bonds issued by an Indian company (rupee-denominated bonds or government securities)




Technical fees


Long-term capital gains (other than exempt income)


Income by way of winnings from horse races


Other Income


Importance of Withholding Tax

  • Withholding tax can significantly help the government by generating more revenue. When a withholding tax is levied on a transaction, the payee deducts the amount of the tax while making payment and deposits the same amount with the government. Thus, the government receives the amount immediately or as and when any such transaction is incurred. This helps in the early generation of revenue for the government as the government doesn’t have to wait for the year-end to receive the amount of the tax.
  • Charging withholding tax for every transaction is under radar and scrutiny. Under withholding tax, it is the liability of the payee to deduct the tax and deposit the same with the government. As the liability is on the payer, it is imperative on the part of the payer to ensure that the amount of tax charged is correct and that the same correct amount is being deposited with the government in their account. Thus, every transaction is scrutinized at every checkpoint i.e. at the time of charging the withholding tax and while paying the deducted tax to the government.
  • Another most important benefit of withholding tax is that it discourages tax evasion. This is because- firstly the non-resident individual cannot exit the tax net as he does not have to pay taxes but the payer has the onus of deducting and paying taxes. Thus, it is imperative on the part of the non-resident individual to pay tax but through the payer. And secondly, the payer has to pay off the deducted tax to the government so both the payee and payer of the withholding tax cannot escape the tax net and thus tax evasion is controlled.


1. What is the difference between withholding tax and TDS?

​Withholding tax and TDS are essentially the same. Under the Indian tax regulations, the tax must be deducted at source while making certain payments such as salary, rent, commission, professional fees, etc. While TDS is synonymous with payments in India, withholding tax is a term that is more common when it comes to cross-country payments.

2. What are the due dates for withholding tax payment?

The due date for withholding tax payment is the 7th day of the month in which withholding tax is deducted. However, for March, the due date for withholding tax payment is 30 April.

3. What is a withholding tax certificate?

Withholding tax deduction certificate has to be provided by the payer to the payee for every quarter. This withholding tax deduction certificate can also be obtained online.

End Note:

Withholding tax is an amount of which deduction takes place directly from the earning of an employee by the employer. It is paid to the government as a part of the tax liability of an individual. The central Government of India is liable for this tax collection. It is important to learn and understand withholding tax as it could impact any salaried individual whose income is beyond the threshold set by the government.

Withholding Tax In India - Customer Reviews

0 / 5 (1 Reviews)
22 Feb 2021

Good website - easy to use,

×Thank you! Your comment will be reviewed and posted shortly.

CreditMantri will never ask you to make a payment anywhere outside the secure CreditMantri website. DO NOT make payment to any other bank account or wallet or divulge your bank/card details to fraudsters and imposters claiming to be operating on our behalf. We do not sell any loans on our own and do not charge any fee from our customers/viewers for the purpose of loan application