It goes unsaid that earning a living is no piece of cake. With a fixed, regular income comes several considerations—the most crucial being taxes.
Are you wondering what is withholding tax? It points to an obligation of the person to withhold a specific amount as tax. This tax is paid with the service, such as commission, salary, rent, professional service, etc.
Worry not if your academic curriculums left out these important bits about taxes. Delve into what is withholding tax in India with Fi Money.
Learn from the top by deriving the withholding tax meaning.
India’s Income Tax Act, under section 195, specifies the policy of tax retention. Tax withholding is the amount which is directly deducted by an employer from the employee’s earnings for taxes.
Further, these deductions go to the central government as tax liability from earners. How much tax you pay depends on your income. Yet, payable income tax depends on your residential status. You can be either of the two:
You qualify as a resident Indian if you have stayed in the country for:
If you do not meet either of the criteria, then you fall under the non-residential Indian category. Moreover, withholding tax is mainly levied on non-resident Indians.
‘X’ is a therapist, and ‘Y’ is a man who goes to X. For a recent booking, X charged INR 50,000. While Y paid INR 45,000, he deducted INR 5000 as withholding tax. Therefore, Y must now pay this deducted amount to the central government. Y can eventually claim this amount while filing for his income tax returns.
As per the payments made to Non-resident Indians, the applicable tax rates are:
These rates do not fit with counties that share a DTAA (Double Taxation Avoidance Agreement) with India.
When it comes to the due date for paying withheld tax, it is the same every month. You can make your payment within the 7th of the month. However, in March, the due date shifts to April 30th.
Understanding withholding tax is essential for anyone who earns an income in India. Withholding tax is the amount deducted by an employer from an employee's earnings for taxes and is paid directly to the central government. The purpose of withholding tax is to generate early tax revenue and prevent tax evasion. The applicable tax rates and due dates depend on the residential status of the individual and the payments made to non-resident Indians. By understanding the nuances of withholding tax, individuals can ensure accurate tax payments and avoid any legal repercussions.
Fi Money, designed for digital natives, makes saving tax enjoyable! It allows you to set up fun FIT Rules like 'Save ₹50 in ELSS Mutual funds every time I order food online'. Once the rule is activated, Fi will automatically transfer the amount to a designated Smart Deposit account of your choice. You can also set a 'Goal Amount' that you want to achieve, such as saving for a dream home, a car, or a child's education. Fi Money, backed by the licensed Federal Bank, offers a variety of features that prove saving tax does not have to be a sacrifice.
The deducted tax must be paid within the 7th of each tax-paying month. However, in March, this due date shifts to April 30th.
While TDS applies to resident Indians, withholding tax applies to Non-resident Indians.