Article

Withholding Tax in India
July 12 , 2013

Withholding tax, as the name implies, is the income tax that is withheld from income before it is passed on to the earner. TDS on salary is a form of withholding tax. In India the term withholding tax is commonly used to denote TDS on incomes of NRIs and other non residents.

Where withholding tax is applicable

As far as individuals are concerned, withholding tax applies to certain earnings of NRIs within the country. Interest from NRO deposits and capital gains from mutual fund investments attract withholding tax. Dividends do not attract withholding tax.

Withholding tax is applied at fixed rates specified. Actual tax to be paid may be a higher rate depending on tax slab of the individual. If extra tax is deducted then a refund must be claimed.

If the NRI is liable to lesser tax in India because of a double taxation agreement with their country of residence then she can submit necessary documents to the bank or mutual fund company responsible for withholding tax.

Withholding tax rates

Rates of withholding tax are fixed for different sources of income.

Income source

Withholding tax rate

Equity mutual fund

15.45% - Short term capital gains

Nil - Long term capital gains

Balanced mutual fund

30.9% - Short term capital gains

Nil - Long term capital gains

Other funds (income funds, liquid funds, other debt funds, MIPs, gold funds)

30.9% - Short term capital gains

20.6% - Long term capital gains

Interest on NRO deposit

30.9%

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