Question 1

What is Withholding Tax in Simple Terms?

Accepted Answer

Withholding tax is the deduction of a certain tax amount from the amount collected at the source of the payment.

Question 2

Who is Responsible for Paying Withholding Tax?

Accepted Answer

The payer (either resident or non-resident) of income has the responsibility to withhold tax when certain specified payments are credited and/or paid.

Question 3

Is Withholding Tax the Same as Payroll Tax?

Accepted Answer

Withholding tax refers to income tax prepaid to the government on an employee’s behalf, whereas payroll tax is specifically for funding social programs like Social Security and Medicare.

Question 4

How does Withholding Tax Affect Employee Salary?

Accepted Answer

Withholding tax reduces the take-home salary of an employee as a certain tax amount is deducted from the gross wages.

Question 5

How is Withholding Tax Calculated in Payroll?

Accepted Answer

Withholding tax (TDS) in payroll is calculated by estimating an employee’s annual taxable income, applying progressive income tax slab rates (typically 5% to 30%), and deducting the proportional amount each pay period.

Question 6

What Happens if Withholding Tax is not Deducted?

Accepted Answer

The Income-tax Officer has the power to impose a penalty on the employer under Section 271C of the Act for failure to deduct or deposit TDS.

Withholding Tax

Withholding Tax: What It Is, Types, and How It’s Calculated

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