• By ADMIN
• Posted 15 Jul, 2023
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Application for Lower Rate TDS Certificate: Reducing Tax Deducted at Source

Considering the tendency of taxpayers to adopt tax evasion measures, income tax provisions in India provide for the deduction of tax at source (TDS) or collection of tax at source (TCS) for certain specified payments. The rates at which such deductions are made are provided under various sections of the Income Tax Act, such as Section 192 for salary income, Section 194 for dividends, and Section 195 for non-residents. The person responsible for making the payment is entrusted with the responsibility of deducting tax at the specified rates either at the time of credit in the books or payment to the recipient, whichever is earlier. They are then required to pay the balance amount to the recipient. This mechanism ensures that tax is collected in advance, helps to curb tax evasion, and enables tracking of the income of recipients in the future.

However, this system of deducting tax at source can create hardships for certain taxpayers who may not have taxable income. Such scenarios may arise when the taxpayer has incurred a loss for the current year, carried forward losses from previous years, is eligible for certain exemptions or deductions, or has income below the taxable threshold. In such cases, tax is deducted at source even though the taxpayer is eligible for a refund. This leads to unnecessary blocking of funds until the refund is received, and the taxpayer has to go through the process of filing a tax return to claim it, even if it is not otherwise mandatory for them to file.

Lower rate of TDS

To address this undue hardship on taxpayers, the income tax law provides an option to obtain a certificate from the Assessing Officer (AO) for lower deduction or nil deduction of TDS. This certificate, governed by Section 197 of the Income Tax Act, allows taxpayers to apply for a lower rate of TDS based on their estimated final tax liability.

Section 197:
The application under Section 197 can be made by the recipient of income for various categories of receipts that attract TDS under different sections of the Income Tax Act. This includes salary income (Section 192), interest on securities (Section 193), dividends (Section 194), interest other than on securities (Section 194A), contractors' income (Section 194C), insurance commission (Section 194D), commission or remuneration on lottery tickets (Section 194G), commission or brokerage (Section 194H), rent (Section 194-I), professional or technical services (Section 194J), compensation on acquisition of immovable property (Section 194LA), income in respect of units of investment fund (Section 194LBB), income in respect of investment in securitization trust (Section 194LBC), and income of non-residents (Section 195).

Application Under Section 197:
An application can be made under Section 197 where the income of any person attracts TDS as per the sections mentioned above, and the income of the recipient justifies non-deduction or lower deduction of income tax based on their estimated final tax liability.

Timeline & Procedure 
While there is no specific deadline mentioned in the income tax provisions for making an application under Section 197, it is advisable to make the application at the beginning of the financial year for regular income throughout the year. In the case of one-off incomes, the application can be made as and when the need arises. To seek permission for nil or lower deduction of TDS, an application using Form 13 needs to be filed with the Assessing Officer (TDS). The Form 13 can be filed either online or manually. Some regions, such as Mumbai, Tamil Nadu, and Karnataka, have enabled online filing of Form 13 for faster processing of applications. It is important to provide complete and correct details in the application to ensure its smooth processing. If the application satisfies the Assessing Officer, they will process the issuance of the certificate. The certificate can be attached to the invoice given to the deductor to justify the lower tax deduction.

Validity of Certificate issued by Assessing Officer:
A certificate issued under Section 197 is valid for a particular financial year and remains in effect from the date of issue throughout the financial year unless canceled by the Assessing Officer (TDS) before the expiry.

Documents required for filing Form 13:
The following documents need to be submitted along with Form 13:
- Signed Form 13
- Copies of income tax returns and acknowledgment for the previous three financial years
- Copies of assessment orders for the previous three financial years
- Financial statements and audit reports, if applicable, for the previous three financial years
- Projected profit and loss account for the current financial year
- Computation of income statement for the previous three financial years and estimated computation for the current financial year
- PAN
- TAN of all parties responsible for paying the recipient
- Estimated income during the financial year
- Any other relevant documents depending on the nature of the income and any previous TDS defaults

Once the application, complete in all aspects, is submitted to the jurisdictional Assessing Officer (TDS), it should be disposed of within 30 days from the end of the month in which it is received. The Assessing Officer will review the documents and information submitted and may seek further queries or documents before issuing the certificate or rejecting the application.

Conclusion:
Applying for a certificate for lower deduction of TDS under Section 197 of the Income Tax Act is a useful mechanism to avoid undue hardships for taxpayers who may not have taxable income or are eligible for exemptions and deductions. By following the prescribed procedure and providing the required documents, taxpayers can obtain a certificate that justifies a lower rate or nil deduction of TDS, ensuring that their funds are not unnecessarily blocked and they do not face undue administrative burdens.