Which statement is NOT a characteristic of withholding tax?

Which statement is NOT a characteristic of withholding tax?

• A. It is deducted at source on items such as interest, royalties, rent, etc., and the net income is received by the beneficiary.
• B. It is calculated using the formula: net amount received divided by (100 minus tax rate deducted) and then multiplied by the tax rate.
• C. It is charged only on dividends.
• D. It is used to collect taxes on payments such as rents and royalties, but not on interest.

Answer: (C)

Withholding tax is a tax taken at the source of a payment before the recipient gets it. It applies to a range of payments, not just dividends—interest, rents, royalties, and similar payments can be subject to it, so the recipient receives net income after tax. The way the tax is calculated can be shown by the usual approach: from the net amount received, determine the gross by dividing by (1 minus the tax rate), or equivalently, the tax withheld equals net multiplied by the tax rate divided by (100 minus the rate). This matches the described calculation method. Therefore, saying it is charged only on dividends isn’t correct, since withholding tax covers other types of payments as well (and in many cases can apply to interest too).

Withholding tax is a tax taken at the source of a payment before the recipient gets it. It applies to a range of payments, not just dividends—interest, rents, royalties, and similar payments can be subject to it, so the recipient receives net income after tax.

The way the tax is calculated can be shown by the usual approach: from the net amount received, determine the gross by dividing by (1 minus the tax rate), or equivalently, the tax withheld equals net multiplied by the tax rate divided by (100 minus the rate). This matches the described calculation method.

Therefore, saying it is charged only on dividends isn’t correct, since withholding tax covers other types of payments as well (and in many cases can apply to interest too).