From July 1, 2022, a new withholding tax provision is applicable on benefits or perquisites arising to a resident from business or profession. The new provision, introduced by The Finance Act, 2022, requires a person providing a benefit or a perquisite arising from a business or a profession, to withhold tax at 10 percent of the value of such benefit – which could also be partly or wholly non-cash.
In this article, we discuss the withholding tax regime in India, including threshold levels, tax rates, and DTA treaty rates on payments to resident and non-resident firms.
Withholding tax (WHT), also called retention tax, is an obligation on the individual (either resident or non-resident) to withhold tax when making payments of a specified nature, such as rent, commission, salary, for professional services, to satisfy contract provisions, etc. – at rates specified in India’s tax regime.
The applicable tax rate is the rate prescribed in the Income Tax Act, 1961 or relevant Double Taxation Avoidance (DTA) Agreement, whichever is lower. Non-residents are liable to pay taxes in India on source income, including:
Payments to Resident Companies and WHT Threshold
Nature of payment
Payment threshold for WHT (INR)
WHT rate (%)
Perquisite arising from business or profession* (Applicable from July 1, 2022)
20,000
10
Specified type of interest
None
10
Non-specified type of interest
5,000
10
Professional service
30,000
10
Technical service
30,000
2
Royalty or FTS
30,000
10
Royalty for sale, distribution, or exhibition of cinematographic films
30,000
2
Commission and brokerage
5,000
5
Rent of plant, machinery, or equipment
180,000
2
Rent of land, building, or furniture
180,000
10
Contractual payment (except for individual/HUF)
30,000 (single payment); 100,000 (aggregate payment)
2
Contractual payment to individual/HUF
30,000 (single payment); 100,000 (aggregate payment)
1
Payments by individual/HUF not covered under sections 194C/194H/194J
5 million
5
Dividend income on shares
5,000
10
Dividends for units of mutual fund
5,000
10
Purchase of immovable property
5 million
1
Cash withdrawal from bank or banking company
10 million
2
Payments to an e-commerce participant, in relation to sale of goods or services facilitated by e-commerce operator through digital platform
–
1
Notes:
Every person (not being an individual) who enters into a financial transaction of an amount aggregating to INR 250,000 or more shall be required to apply to a tax officer for a permanent account number or PAN.
If the PAN of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Income-tax Act, the rates in force, or the rate of 20 percent, whichever is higher.
Finance Act 2021 has prescribed a levy of higher tax deducted at source (TDS) and tax collected at source (TCS) on non-filers of income-tax return.
Accordingly, higher TDS will be applicable to those having interest income, dividend income, annuity pensions, income from capital gains.
However, this higher TDS will only apply to a specified category of non-filers of return.
Further, this new section shall not apply where the tax is required to be deducted in case of salaries, provident fund, winning from lottery etc., winning from horse rates, income received from a securitization trust or cash withdrawal exceeding INR 2 million.
As per the provisions under the Indian Income-tax Act, 1961, the higher TDS rate applied will be the higher of anyone of the following:
Payments to Non-Resident Companies and WHT Threshold
Nature of payment
WHT rate (%)
Interest on foreign currency (subject to conditions)
5
Interest on money borrowed in foreign currency under a loan agreement or by way of long-term infrastructure bonds (or rupee denominated bonds)
5
Interest on investment in long-term infrastructure bonds issued by Indian company (rupee denominated bonds or government security)
5
Interest payable on long-term bonds listed on IFSC
4
Non-specified type of interest
20
Royalty and technical fees
10
Dividend income
20
Long-term capital gains other than equity shares of a company or units of equity oriented fund/business trust on which STT is paid
20
Long-term capital gains on equity shares of a company or units of equity-oriented fund/business trust on which STT is paid
10
Income by way of winning from horse races
30
Other income
40
Notes:
Rates for Withholding Tax on Payments to Non-Residents
Nature of income
WHT (%)
Interest
20%
Dividends paid by domestic companies
Nil
Royalties
10%
Technical services
10%
Any other services: Individuals
30% of income
Any other services: Companies
40% of the net income
Some tax treaties provide for lower WHT rates from certain types of income, as follows. Note that this table is to be read along with the subsequent notes on qualifying conditions.
Recipient
WHT (%)
Dividend
Interest
Royalty
Fee for technical services
Non-treaty
10
20
10
10
Treaty:
Albania
10
10
10
10
Armenia
10
10
10
10
Australia
15
15
10 (2)/15
10 (2)/15
Austria
10
10
10
10
Bangladesh
10 (3)/15
10
10
N/A (4)
Belarus
10 (7)/15
10
15
15
Belgium
15
10 (9)/15
10
10
Bhutan
10
10 (19)
10
10
Botswana
7.5 (7)/10
10
10
10
Brazil
15
15 (19)
25 (13)/15
15
Bulgaria
15
15 (19)
15 (6)/20
20
Canada
15 (3)/25
15 (19)
10 (2)/15
10 (2)/15
China (People’s Republic of China)
10
10 (19)
10
10
Chinese Taipei (Taiwan)
12.5
10
10
10
Colombia
5
10
10
10
Croatia
5 (15)/15
10
10
10
Cyprus
10
10 (19)
10
10
Czech Republic
10
10 (19)
10
10
Denmark
15 (7)/25
10 (9)/15
20
20
Egypt
N/A (4)
N/A (4)
N/A (4)
N/A (4)
Estonia
10
10
10
10
Ethiopia
7.5
10
10
10
Fiji
5
10 (19)
10
10
Finland
10
10
10
10
France
10 (5)
10/15 (5)
20 (5)
10 (5)
Georgia
10
10
10
10
Germany
10
10 (19)
10
10
Greece
N/A (12)
N/A (12)
N/A (12)
N/A (4)
Hong Kong (entered into force)
5
10
10
10
Hungary
10 (5)
10 (5, 19)
10 (5)
10 (5)
Iceland
10
10
10
10
Indonesia
10
10 (19)
10
N/A (4)
Ireland
10
10 (19)
10
10
Israel
10
10
10
10
Italy
15 (3)/25
15 (19)
20
20
Japan
10
10
10
10
Jordan
10
10
20
20
Kazakhstan
10
10 (19)
10
10
Kenya
10
10 (19)
10
10
Korea, Republic of
15
10
10
15
Kuwait
10
10
10
10
Kyrgyz Republic
10
10
15
15
Latvia
10
10
10
10
Libya
N/A (12)
N/A (12)
N/A (12)
N/A (4)
Lithuania
5 (3)/15
10
10
10
Luxembourg
10
10
10
10
Macedonia
10
10
10
10
Malaysia
5
10
10
10
Malta
10
10 (19)
10
10
Mauritius
5 (3)/15
7.5 (12)
15
N/A (4)
Mexico
10
10
10
10
Mongolia
15
15
15
15
Montenegro
5 (7)/15
10
10
10
Morocco
10
10 (19)
10
10
Mozambique
7.5
10
10
N/A (4)
Myanmar
5
10
10
N/A (4)
Namibia
10
10
10
10
Nepal
5 (3)/10
10
15
N/A (4)
Netherlands
10 (5)
10
10
10
New Zealand
15
10 (19)
10
10
Norway
10
10
10
10
Oman
10 (3)/12.5
10 (19)
15
15
Philippines
15 (3)/20
10 (11)/15
15 (20)
N/A (4)
Poland
10
10
15
15
Portugal
10 (7)/15
10
10
10
Qatar
5 (3)/10
10
10
10
Romania
10
10
10
10
Russian Federation
10
10 (19)
10
10
Saudi Arabia
5
10
10
N/A (4)
Serbia
5 (7)/15
10
10
10
Singapore
10 (7)/15
10 (9)/15
10
10
Slovenia
5 (3)/15
10
10
10
South Africa
10
10
10
10
Spain
15
15 (19)
10 (5)/20
20 (5)
Sri Lanka
7.5
10
10
10 (5)
Sudan
10
10
10
10
Sweden
10 (5)
10 (5, 19)
10 (5)
10 (5)
Switzerland
10
10
10
10
Syria
5 (3)/10
10
10
N/A (4)
Tajikistan
5 (3)/10
10
10
N/A (4)
Tanzania
5 (3)/10
10
10
N/A (14)
Thailand
10
10 (19)
10
N/A (4)
Trinidad & Tobago
10
10
10
10
Turkey
15
10 (9)/15
15
15
Turkmenistan
10
10
10
10
Uganda
10
10
10
10
Ukraine
10 (7)/15
10
10
10
United Arab Emirates
10
5 (9)/12.5
10
N/A (4)
United Kingdom
10/15 (16)
10 (11)/15
10 (2)/15
10 (2)/15
United States
15 (3)/25
10 (17)/15
10 (18)/15
10 (18)/15
Uruguay
5
10
10
10
Uzbekistan
10
10
10
10
Vietnam
10
10 (19)
10
10
Zambia
5 (8)/15
10
10
N/A (4)
Notes: Qualifying conditions – the numbers in brackets in the table refer to the following conditions:
(1) The treaty tax rates on dividends are not relevant for dividends received up to March 31, 2020 since under the earlier Indian tax legislation, most dividend income from Indian companies that is subject to DDT is exempt from income tax in the hands of the recipient. However, this scenario has changed since DDT is abolished and tax is now levied in hands of recipient of dividend income with effect from April 1, 2020.
(2) 10 percent for the use of or right to use any industrial, commercial, or scientific equipment; and in other cases:
(3) During the first five years of the agreement:
(4) 15 percent if the payer is the government or specified organisation.
(5) 20 percent in any other case.
(6) Subsequent years: 15 percent in all cases.
(7) If at least 10 percent of capital is owned by the beneficial owner (company) of the company paying the dividend or interest.
(8) In absence of specific provision, it may be treated as business profits or independent personal services under respective treaties, whichever is applicable.
(9) The ‘most favored nation’ clause is applicable. The protocol to the treaty limits the scope and rate of taxation to that specified in similar articles in treaties signed by India with an OECD-member country or another country.
(10) If royalty relates to copyrights of literary, artistic, or scientific work.
(11) If at least 25 percent of capital is owned by the beneficial owner (company) of the company paying the dividend.
(12) If at least 25 percent of capital is owned by the company during at least six months before date of payment.
(13) If paid on a loan granted by a bank/financial institution.
(14) The tax rate for royalties and fees for technical services, under the domestic tax laws, is 10 percent. This rate is to be increased by a surcharge at 2/5 percent on the income tax (based on taxable income) and health and education cess of 4 percent on the income tax including surcharge. As a consequence, the effective tax rate is 10.608/10.92 percent. This rate applies for payments made under an agreement entered into on or after 1 June 2005. Accordingly, a tax resident can either use the treaty rate or domestic tax rate, whichever is more beneficial.
(15) If interest is received by a financial institution.
(16) Taxable in the country of source as per domestic tax rates.
(17) If royalty payments arise from the use or right to use trademarks.
(18) Tax treaties of certain countries do not have a separate clause specifying the WHT rate for fees for technical services and fees for included services.
(19) 5 percent if the beneficial owner is a company holding at least 10 percent of share capital; 15 percent in other cases.
(20) 15 percent of gross amount of dividend in case such dividend is paid out of income derived from immovable property and such income is exempt from tax. 10 percent in all other cases.
(21) 10 percent if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company).
(22) 10 percent if payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment and fee for included services that are ancillary and subsidiary to the enjoyment of the property for which payment is received.
(23) Dividend/interest earned by the government and certain institutions, like the Reserve Bank of India, is exempt from taxation in the country of source.
(24) If it’s payable in pursuance of any collaboration agreement approved by the Government of India.
This article was first published on September 22, 2021 and last updated on July 21, 2022.
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how much rate of withholding tax on business transaction and interest.
in double taxation effect which rate applicable.
Interest Payment to Foreign Companies if they done have a Pan Numbers and if they have a pan numbers what is the percentage for the same and also it is come under TDS Act, Kindly give your suggestion.
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