Income that is subject to tax at source means that tax is withheld

• A. at the end of the calendar year
• B. at the time of payment
• C. monthly in the following pay period
• D. when the income is earned

Answer: (B)

Tax withheld at source means the tax is taken from the employee’s pay at the moment the payment is issued. In other words, the payer deducts the tax right when the income is paid, so the employee receives net pay and the government receives the tax sooner through the withholding. This is different from waiting until the end of the year, or postponing until a later pay period, or treating tax as accruing only when the income is earned. Withholding at the time of payment ensures the payroll system collects taxes as earnings are disbursed.