Income Tax

Lower Tax Deduction certificate (TDS)

CA Adityavikram Banka

What is lower tax deduction certificate (TDS)?

1. Under Section 197 of the Income Tax Act, 1961 the assessee can apply for a lower rate of tax to be deducted at source / no tax to be deducted at source, i.e. the lower rate of TDS / Nil TDS.

2. The application to obtain the Lower TDS or Nil TDS Certificate can be filed by any person in some of the following cases :

a) Property Sale by NRI – If you’re a Non-Resident selling property, getting a Lower Deduction Certificate is key. It minimizes excess tax deductions, ensuring you retain more from the sale transaction.
b) Loss-making businesses
c) Low profitable business (profit margins is less than the rate of tax deduction)
d) Assessee having carried forward losses to set off with future year’s Income.

3. List of Documents to be submitted to the Assessing Officer for lower tax deduction certificate (TDS) :

a. PAN & address proof of deductee
b. TAN & PAN of deductor
c. Signed & Filled Form 13
d. Original Letter of Authority
e. Last 3 years ITR & Computation of income
f. Last 3 years Audit Report, Balance Sheet, Profit & Loss Account
g. Estimated computation of income and tax liability for the current financial year
h. Projected profit and loss account for the current financial year

4. The AO has to determine the existing income and estimated tax liability and after considering tax payable on the estimated income of the ongoing financial year, the AO can issue Lower TDS or Nil TDS Certificate.

5. AO has to dispose of the applications within a time frame of 30 days.

6.  Lower Tax Deduction Certificate u/s 197 is issued for a particular financial year and stands valid from the date of issue and throughout the financial year unless cancelled by the assessing officer (TDS) before the expiry. 

CA Adityavikram Banka
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