{"id":362983,"date":"2026-05-16T14:16:08","date_gmt":"2026-05-16T08:46:08","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=362983"},"modified":"2026-05-16T14:16:08","modified_gmt":"2026-05-16T08:46:08","slug":"withholding-tax","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/withholding-tax\/","title":{"rendered":"Withholding Tax"},"content":{"rendered":"<p><b>News:<\/b><span style=\"font-weight: 400;\"> India\u2019s foreign exchange reserves have fallen by nearly $38 billion since March due to capital outflows linked to the West Asia conflict. To attract overseas investments, the government is reportedly considering reducing the withholding tax rate from 20% to 5%.<\/span><\/p>\n<h2>About Withholding Tax<\/h2>\n<figure style=\"width: 194px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/encrypted-tbn0.gstatic.com\/images?q=tbn:ANd9GcQ7QLrrKVxtUBGEXu_dsJCftW21cJxSwnzrdg&amp;s\" alt=\"Withholding Tax \" width=\"194\" height=\"259\" \/><figcaption class=\"wp-caption-text\">Source: IE<\/figcaption><\/figure>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Withholding tax is <strong>pa<\/strong><\/span><b>id by foreign investors on the interest they earn on their holding of Indian bonds.<\/b><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is<\/span><b> tax collected at the source of income.\u00a0<\/b><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Instead of waiting for an investor or foreign company to pay taxes at the end of the financial year, <\/span><b>the government requires the payer to deduct a portion of the income<\/b><span style=\"font-weight: 400;\"><strong> before it is remitted<\/strong> to the recipient.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The deducted amount is then <strong>directly deposited<\/strong> with the government<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It applies <\/span><b>to income earned through employment, investments, royalties, and other sources, <\/b><span style=\"font-weight: 400;\">ensuring advance tax collection.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Impacts of Withholding Tax on Foreign Portfolio Investors (FPIs):<\/b>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It reduces <\/span><b>foreign portfolio investors\u2019 (FPIs) effective yields and overall investment returns<\/b><span style=\"font-weight: 400;\"> because it is deducted at the source before interest, dividends or other investment income is remitted to them.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This <\/span><b>compresses investors\u2019 post-tax returns, weakens the power of long-term compounding and limits the amount of capital available <\/b><span style=\"font-weight: 400;\">for immediate reinvestment.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">For large global investors operating across multiple jurisdictions, such deductions<\/span><b> can also create short-term liquidity constraints by locking up funds <\/b><span style=\"font-weight: 400;\">until tax credits or refunds are processed.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">FPIs often face significant administrative and compliance burdens in claiming relief <\/span><b>under Double Taxation Avoidance Agreements (DTAAs).<\/b><span style=\"font-weight: 400;\">\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Higher withholding taxes may <\/span><b>reduce the attractiveness of a market<\/b><span style=\"font-weight: 400;\"> by increasing transaction costs, lowering risk-adjusted returns and creating regulatory friction for overseas investors.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><b>Withholding tax impact on India: <\/b><span style=\"font-weight: 400;\">A high withholding tax is seen as a <\/span><b>major deterrent for foreign capital inflows at a time when India is grappling with rising external pressures<\/b><span style=\"font-weight: 400;\">, including a sharp surge in crude oil prices.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Reducing Withholding tax is needed as the government has already proposed several measures <\/span><b>to curb outflows and manage the external account,<\/b><span style=\"font-weight: 400;\"> including cuts in expenditure and restrictions on foreign travel, gold imports and other non-essential spending.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Lowering the withholding tax could<\/span><b> improve post-tax returns for foreign investors<\/b><span style=\"font-weight: 400;\">, make Indian debt and other financial assets more attractive, and help stabilize forex reserves amid heightened global uncertainty.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>News: India\u2019s foreign exchange reserves have fallen by nearly $38 billion since March due to capital outflows linked to the West Asia conflict. To attract overseas investments, the government is reportedly considering reducing the withholding tax rate from 20% to 5%. About Withholding Tax Withholding tax is paid by foreign investors on the interest they&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/withholding-tax\/\">Continue reading <span class=\"screen-reader-text\">Withholding Tax<\/span><\/a><\/p>\n","protected":false},"author":10366,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1566,3127,12039],"tags":[11872,10500],"class_list":["post-362983","post","type-post","status-publish","format-standard","hentry","category-daily-factly-articles","category-economy","category-knolls","tag-9pm-daily-factly","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/362983","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10366"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=362983"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/362983\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=362983"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=362983"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=362983"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}