Income Tax

Extension of validity of Lower or Nil Tax Deduction/Collection Certificate

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Due to COVID-19 pandemic, all establishments including the income tax office are not working to full capacity and hence the income tax officers were unable to issue certificates u/s. 197 of the Income Tax Act, 1961, for lower deduction of tax on time causing hardships to businesses. As a result, the CBDT has come up with a circular relaxing these provisions and extending the validity of already issued Lower or Nil Tax deduction/collection certificates under sections 195/197/206C of the Act FY 2019-20 up to 30th June, 2020 or the date of disposal of the application by AO whichever is earlier.

The notification broadly deals with the following three categories of assesses:

  1. Assesses who are holding a valid Lower or Nil Tax Deduction/Collection Certificate for FY 2019-20 ‘AND’ have applied for a new LOWER OR NIL TAX DEDUCTION/COLLECTION CERTIFICATE for FY 2020-21 but their application is pending approval:

In the above case, the validity of the existing certificate for FY 2019-20 has been extended up to 30.06.2020.  This means that deductors can rely upon the Lower or Nil Tax Deduction/Collection Certificate of FY 2019-20 given by their deductees up to 30.06.2020 or the date of disposal of the same by AO whichever is earlier. However, deductors should note that this benefit can be given only to those deductees who hold a valid Lower or Nil Tax Deduction/Collection Certificate for FY 2019-20. Further, the rate of tax deduction should be as per the old Lower or Nil Tax Deduction/Collection Certificate of FY 2019-20 and not as per the new one applied.

  1. Assesses who are holding a valid LOWER OR NIL TAX DEDUCTION/COLLECTION CERTIFICATE for FY 2019-20 but could not apply for a new one for FY 2020-21 on the TRACES portal:

In the above case too, the validity of the existing certificate for FY 2019-20 has been extended up to 30.06.2020. However, CBDT has insisted that such assesses apply for a New Lower or Nil Tax Deduction/Collection Certificate with the AO as soon as possible or as soon as normalcy resumes or 30.06.2020 whichever is earlier.  This means that deductors can still rely upon the Lower or Nil Tax Deduction/Collection Certificate of FY 2019-20 given by their deductees up to 30.06.2020 or the date of disposal of their application by AO whichever is earlier. However, again, an essential condition is the possession of a Valid Lower or Nil Tax Deduction/Collection Certificate for FY 2019-20 by the deductees without which this benefit cannot be given.  Rate of tax deduction will be as per the old Lower or Nil Tax Deduction/Collection Certificate for FY 2019-20.

To avoid any confusion, I clarify that the benefit cannot in any of the two cases be given to a deductee who does not hold a valid Lower or Nil Tax Deduction/Collection Certificate for FY 2019-20 but has just applied one for FY 2020-21 and his application is pending for disposal.

  1. Non resident assesses who are not covered by any of the above two categories (i.e. where they do not hold any Lower Or Nil Tax Deduction/Collection Certificate for FY 2019-20):

With respect to non-resident assesses (including foreign companies) having a Permanent Establishment (PE) in India who are not covered by the situations mentioned above (i.e. they do not have an existing lower / nil TDS certificate for the FY 2019-20), tax is to be deducted at 10 percent plus surcharge and cess on payments to be made till 30 June 2020, or disposal of their applications if any made, whichever is earlier. Thus, a concession of deducting TDS @ 10% + Surcharge and Cess has been given to non-residents even if they have no Lower Or Nil Tax Deduction/Collection Certificate for FY 2019-20 irrespective of any other condition.