The government and the Reserve Bank of India are learnt to be considering to cut in the withholding tax rate on government bonds to attract foreign investment inflows.
About Withholding Tax:
Withholding tax is withheld or deducted from certain types of income, such as wages, dividends, interest, and royalties, when they are paid to the recipient (non-resident individual).
It is akin to a tax deducted at source and is paid by foreign investors on interest income they receive on their holding of Indian bonds.
It is also known as Retention tax.
Withholding tax is applicable in the case payments made to non-resident individuals.
According to Section 195 of the Income Tax Act, if the income is paid in India, the person responsible for payments to NRI must deduct the withholding tax at the time of payment or when the amount is credited to the NRI’s account.
The amount of withholding tax in India depends on the type of income, the amount of income earned, and the tax laws of the country where the income is earned.
The tax rate is decided as prescribed in the Income Tax Act, 1961, or Double Taxation Avoidance Agreement (DTAA), whichever is lower.
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