Implications of Withholding tax - Withholding tax is an amount that is deducted directly from the employee’s income by the employer and paid to the government as a part of a person’s tax liability. These taxes are directly paid to the central government of India. In India, the Central Government is accountable and authorized to collect taxes and the Tax is usually charged based on the salary of an individual.
How is Withholding Tax calculated?
The income is divided into several slabs and whenever it exceeds the minimum threshold limit then it attracts taxes as per the rates decided for various income slabs described in the Income Tax Act. Tax liability is decided by computing the total income received for the previous year in the current assessment year. The income tax payable by any person is reliant on the residential status of that individual.
Why is withholding tax charged?
The major benefits related to the charging of withholding tax are as under:
- The first and most important beneficiary of charging withholding tax is the government. The chief benefit that the government acquires is nothing but an early generation of 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.
- The second benefit of charging withholding tax is that every transaction is under radar and scrutiny. As the liability is on the payer it is vital on the part of the payer to confirm that the amount of tax charged is correct and that the same accurate amount is being deposited with the government in their account. So in this way every transaction is monitored at every checkpoint.
- Another most important Implications of withholding tax is that in this case tax evasion is not possible. This is because of two reasons, 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. So it is vital on the part of the non-resident to pay tax but through the payer and secondly 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 liability and thus tax evasion is controlled.
Withholding tax is a tax that is deducted by the payer of the salary. This withholding tax is also called retention tax. Under withholding tax, the taxable amount is deducted at source by the payer i.e. the payer of the income is liable to deduct the withholding tax before making payment to the payee.
Leave a Reply
Your email address will not be published. Required fields are marked *