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Issuance of Lower Deduction or Nil TDS Certificate

procedure lower nil rate tds deduction certificate

It is well known that whenever a person deducts tax on income of an individual, a HUF, a Company or such any other person as may be prescribed under the Income-tax Act, 1961 (hereinafter referred to as “Act”), and the recipient’s (here deductee) income tax liability falls short than the amount of tax deducted on his income, then the taxpayer can claim refund of such differential amount in his income tax return. The process of refund of excess tax paid can take time period from 1 month to 6 months. This causes blocking of a significant amount of the taxpayer with the income tax department, which subsequently, adversely affects the working capital requirement of the taxpayer. Thus, in order remove such hurdle faced by the taxpayers, the Government of India introduced section 197 to the Income-tax Act, 1961, according to which a taxpayer can ask the person deducting tax on his income not to deduct or deduct tax at a lower rate than the prescribed under the Act by showing a certificate for lower or nil tax deduction received from income tax department. 

Section 197 of the Income-tax Act, 1961
Section 197 of the Income-tax Act, 1961 states that if the recipient of any income, subject to provisions of TDS as per the Act, estimates that his tax liability for the year might be lower than the TDS or NIL, then in such a case he is eligible to apply for a lower or no tax deduction of tax on his income. The recipient of income is, however, required to submit an application to the Assessing Officer in Form 13 to get allowed for low or nil deduction of tax on his income. The Assessing Officer, if satisfied with all the conditions, can issue him a certificate as he may consider to be appropriate.

The person applying for such a certificate is required to submit documents as may be prescribed. The documents may include Form 13, audited financial statements, tax audit report of the previous 3 Years and such other documents.

Form 13 as per Rule 28 of Income-tax Rules
The form 13 as per rule 28 of the Income tax rules is an application in which a taxpayer is required to apply for lower or nil deduction of tax as per section 197 of the Act. The taxpayer is also required to furnish certain information in the application as may be required. The information may include Name and PAN of the taxpayer, Purpose of the refund etc.

Circumstances where a taxpayer can apply for lower or nil tax deduction certificate
In the following circumstances a taxpayer can opt for Nil or lower TDS certificate:

  • If he’s operating a loss making business;
  • When his profit margin is less than the rate of tax deduction (least profitable business);
  • If he has carried forward losses to set off with future year’s Income;
  • If he is eligible for deductions of profits (u/s 10 or under chapter VI A etc.);
  • If he is eligible for weighted deduction of expenditure; and
  • If he is a non-resident selling immovable property.

Validity of the certificate issued u/s 197 of the Income-tax Act, 1961
The validity of the certificate issued under section 197 stands till the end of the financial year as stated in the certificate unless it is cancelled or the date stated in the certificate lapses. However, the Finance Ministry extended the validity of all lower withholding tax orders for the financial year 2019-20 by three months till June 30 in view of hardships caused due to COVID-19 pandemic.

Sections covered for lower or nil deduction of tax
It is worth noting that not all the sections of the Act, under which a tax is deductible at source, are eligible for lower or nil tax deduction.

In this regard, a taxpayer is eligible to apply for a lower or nil TDS certificate if the tax is deductible at source under any of the following sections of the Income Tax Act 1961:

  • Section 192- Salary Income;
  • Section 193 – Interest on Securities;
  • Section 194 – Dividends;
  • Section 194A – Interest other than interest on securities ;
  • Section 194C – Contractor’s Income;
  • Section 194D – Insurance Commission;
  • Section 194G -Commission/remuneration/prize on lottery tickets
  • Section 194H – Brokerage or Commission income;
  • Section 194I – Rental Income;
  • Section 194J – Professional and Technical service income;
  • Section 194LA – Compensation on acquisition of immovable property;
  • Section 194LBB – Income in respect of units of investment fund;
  • Section 194LBC – Income in respect of investment in securitization trust; and
  • Section 195 – Income of non residents.

It is worth to note that application for lower or nil tax deduction is not permitted under sections 194B, 194BB, 194DA, 194E and 194IA of the Act.

At AJSH, we assist varied clients in the filing of TDS returns and render advisory service with regard to applicability and implication of TDS, filing of Income Tax returns, Income Tax assessments, Income Tax refunds. If you have any questions with regard to payment/deduction of TDS or any other service, kindly contact us.


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