In order to overcome tax evasion measures adopted by taxpayers, Indian Income Tax laws provide for deduction of tax on income of any person or on sum payable to any person at the time of credit or at the time of payment at the rates in force under provisions of Income Tax Act, the concept of TDS was introduced by Indian government with an intent to collect tax from the every source of income and to keep track of income of beneficiary in future. However, this concept of deducting tax at source itself is creating complication for those taxpayers whose actual income tax liability is less than the TDS which has been deducted by the payer as per Chapter-XVII or may not have any taxable income. Considering the complication faced by taxpayers, government has introduced the concept of lower deduction certificate.
Who is eligible to apply for lower deduction certificate?
As per the provisions of Income Tax Act, if the actual income tax liability on the taxable income of the assessee is less than the amount of TDS deducted by the payer, then the assessee can file an application for LDC i.e. Lower Deduction Certificate with the Income Tax Authorities as per rule 28 of the Income Tax Rules.
What is required to be done for filing an application for issuance of certificate?
A person shall be required to make an application in Form No. 13 electronically, through digital signature; or electronic verification code. The Principal Director General or the Director General of Income-tax (Systems) shall lay down procedures, formats and standards for ensuring secure transmission of data and uploading of documents and he shall also be accountable for evolvement and implementation of appropriate security, archival and retrieval policies in respect of the furnishing of Form No.13. It is suggested that the applicant should file complete and correct details while furnishing Form-13.
When lower deduction certificate shall be issued?
When the Assessing Officer is satisfied that existing and estimated tax liability of a person making an application under rule 28 justifies the deduction of tax at lower rate or no deduction of tax, then the Assessing Officer shall issue a certificate for deduction of tax at such lower rate or no deduction of tax accordingly. When such certificate is given, the person shall deduct income-tax at the rates specified in such certificate or deduct no tax, until such certificate is being cancelled/ revoked by the Assessing Officer.
How existing and estimated tax liability shall be determined by the Assessing officer?
The following shall be taken into consideration by Assessing Officer for determining the existing and estimated tax liability:
- Tax payable on estimated income of the previous year relevant to the assessment year;
- Tax payable on the assessed or returned (or estimated income of last 4) previous years
- Existing liability as per the Income-tax Act, 1961;
- Advance tax payment (tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making application under rule 28).
To whom certificate will be issued?
The certificate shall be issued directly to the person who is responsible for deducting the tax and whose name has been mentioned by the person while making an application for issue of such certificate. However, if the number of persons responsible for deducting the tax exceeds one hundred and the person making such application do not possess the details of such persons at the time of making application then such certificate for deduction of tax at lower rate may be issued to the applicant who made an application for issue of such certificate, authorizing him to receive such amount of income or sum after deduction of tax at lower rate.
What is the validity period of lower deduction certificate?
The Lower deduction certificate shall remain valid for such period of the previous year as specified therein, unless it is cancelled/ revoked by the Assessing Officer before the expiry of the prescribed period. Also, it shall be valid only with respect to the person responsible for deducting the tax and named therein and to the applicant who made an application for issue of such certificate.
Written by – Anjali Singh
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