What Is Withholding Tax?

Withholding tax is also known as a retention tax and it refers to the money that an employer deducts from employees’ gross salary and pays directly to the government. Withholding taxes are found in all tax systems and are widely utilized in respect of dividends, royalties, interest, and similar tax payments. The taxpayer’s obligation to withhold tax when paying rent, commission, or payment for professional services at rates specified consistent with the current tax laws. The rates that are specified in the current tax regime are frequently reduced by tax treaties.

The provisions of withholding are in the nature of machinery provisions applicable to the payer of the income to enable easy collection and recovery of tax.

Also, See: Taxable Income