Withholding Tax and impact on Debt Market

Abstract

Withholding Tax is a requirement on the payer of an item of income to withhold or deduct a certain amount or percentage of the income from the payment, and remit the same to the government. It can apply to employment income, payments of interest or dividends, royalties, rent or even the sale of real estate, etc. Typically, it is used on foreign residents who receive income in a different Tax jurisdiction. It is treated as a payment against future Tax liability in a Tax jurisdiction. In India, withholding tax is levied on non-resident entities receiving income in India in various forms like interest, royalties, branch remittances, etc. Withholding taxes are often justified on revenue grounds, as a way to protect a country’s revenue base and to capture revenue from other countries.