With Holding Return Tax Filing

Know About Withholding Return Tax Filling

Every person who has a TAN or Tax Deduction and Collection account number has to file a return showing the details of the payment which he has made along with the TDS or withholding tax which he has deducted along with the proof of deposit of the same with the Government or designated agencies.

What is the Withholding Tax?

Withholding tax, in essence, is an obligation on the payer (an Indian individual or company who has sought the services of the non-resident individual) to withhold a certain amount as tax, while initiating the payment for the services received, such as contract, professional services, salary, commission, rent, etc. The amount to be withheld is prescribed as per the withholding tax rates specified by the income tax act.

In simple terms, withholding tax is mainly applicable to non-resident Indians. The example below will further simplify the process.

Example: A is a non-resident software professional. B, a resident of India, sought the services of A. For rendering the services, A charged Rs 40,000/-. B made a payment of Rs 36,000/- and withheld Rs 4,000/- as tax. Now, it is the liability of B to pay the withheld amount as tax for the services received from A to the income tax department of the Government of India. A can later claim the income tax credit while filing for income tax returns.

The Direct Tax Provisions Under Withholding Tax

• According to section 195 of the Income Tax Act, it is the obligation or liability of the payer, who is responsible for making the payment, to deduct the tax at source from the payment, before making the payment or before initiating the online transaction to the non-resident individual.
• If the payment is not taxable, then the payer should present an application to the assessing officer to determine the appropriate sum chargeable under the income tax act. The tax should then be deducted only on the chargeable sum.
• The tax should be deducted as per the withholding tax rates prescribed by the Income Tax Act.
• The payer then has to pay the prescribed amount, deducted as tax, to the Income Tax department.

Withholding Tax Rates?

The prevailing withholding tax rates applicable on payments made to non-residents are:

• Interest — 20%
• Dividends paid by domestic companies — Nil
• Royalties — 10%
• Technical services — 10%
• Other services
• • Individual — 30% of the income
  • Companies — 40%of the net income

These are general rates and do not apply to countries with whom India has a Double Taxation Avoidance Agreement (DTAA).

As you can see, the withholding tax is mainly applicable to non-resident individuals. And non-resident individuals can take benefit from this income tax credit while filing their income tax returns.