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Do you get confused between Revenue Tax and Withholding Tax? Nicely, each are charged on the earnings earned in India. Nevertheless, the aim of Revenue Tax is to tax the native earnings. Whereas, Withholding Tax is utilized on native earnings earned by a non-resident. This text covers the essential variations between Revenue Tax and Withholding Tax.
On the subject of taxation, the place the place the earnings is earned takes centre stage. So, as an Indian Nationwide, in the event you work for an Indian firm and earn a wage, then you have to pay the native Revenue Tax.
Then again, if a international nationwide or an NRI works in India, the earnings are topic to withholding tax in India. Therefore, it acts like a TDS for the non-resident. Let’s dig a bit deeper into each these ideas.
When Are You Liable to Pay Revenue Tax?
Any resident Indian having earnings that exceeds the essential exemption restrict is topic to earnings tax. The earnings earned by you is split into 5 classes, particularly:
- Revenue from Salaries
- Revenue from Home Property
- Revenue from Enterprise or Career
- Capital Positive aspects
- Revenue from Different Sources
It’s necessary for taxpayers to carry a PAN Card of their identify. That is the registered ID with the Revenue Tax Division.
What’s TDS on Revenue Tax?
TDS is relevant for the resident taxpayers if the earnings exceeds the prescribed limits. The payer deducts the TDS and pays the remaining quantity to you. You’ll be able to declare the TDS as a deduction out of your tax legal responsibility. Let’s perceive this with the assistance of the next instance.
Suppose your wage is Rs. 50,000 per thirty days. Now, your annual earnings turns into Rs. 6 Lakhs that exceeds the essential exemption restrict of Rs. 2.50 Lakhs. Therefore, your employer is liable to deduct TDS @ 10% on this earnings.
When is Withholding Tax Charged?
The earnings earned by a non-resident for the companies supplied in India is topic to Withholding Tax. Identical as TDS, Withholding Tax is deductible on the supply of the earnings. It’s necessary for each non-resident producing earnings from India to carry a PAN Card.
This tax is relevant not solely to foreigners but in addition to the NRIs (Non-Resident Indians). Whether or not a non-resident receives the earnings contained in the Indian Territory or exterior it, the earnings is topic to Withholding Tax. Deductions could be constituted of the next classes of incomes:
- Curiosity earnings
- Salaries in lieu of companies supplied in India
- Work Contract
- Fee
- Rental Revenue
- Enterprise Revenue
- Fess for technical companies
- Revenue from royalties
- Revenue acquired from different companies
Notice: Dividend earned by non-residents from Indian Firms is exempt from Withholding Tax.
Tax Charges Beneath Revenue Tax and Withholding Tax
- Revenue Tax: The earnings acquired by the residents is chargeable to tax primarily based on the earnings tax slab From the 12 months 2020-21, you get an possibility to decide on between the brand new and outdated tax regimes.
- Withholding Tax: India has Double Taxation Avoidance Agreements with round 80 international locations. These DTAAs prescribe the slab charges for Withholding Tax. Within the absence of a DTAA, the tax charges supplied by Part 195 of the Revenue Tax Act are relevant.
In contrast to TDS on the Revenue Tax, Withholding Tax has one other profit. Suppose a non-resident leaves India after receiving the earnings. It can’t be definitely mentioned whether or not he/she can pay the tax later. Therefore, deducting the tax at an early stage can simplify the method.