Certificate for Lower Deduction of Tax
Introduction
An assessee can apply to the Assessing Officer for a certificate permitting nil or lower tax deduction at source (TDS) if their estimated tax liability justifies a lower rate.
Eligible Applicants
Any person, including residents, non-residents, individuals, firms, and companies, can apply for this certificate. In some cases, a self-declaration under Section 197A may be submitted instead.
Applicable Income Categories
A certificate can be obtained for the following income types:
- Salaries (Section 192)
- Interest (Sections 193&194)
- Dividends (Section 194)
- Payments to Contractors (Section 194C)
- Commission & Brokerage (Sections 194D,194G,194H)
- Rent (Section 194-I)
- Professional & Technical Fees (Section 194J)
- Income from Units, Business Trusts, Investment & Securitization Trusts (Sections 194K,194LBA,194LBB, 194LBC)
- Compensation on Compulsory Property Acquisition (Section 194LA)
- Payment to contractor or professional by the specified individual or HUF (Section 194M)
- Payments by E-commerce Operators & for Purchase of Goods (Sections 194-O,194Q)
- Payments to Non-residents (Section 195)
Application Process
- Application can be filed online inForm 13with a Digital Signature or Electronic Verification Code.
- PAN is mandatory; without PAN, tax is deducted at higher rates as perSection 206AA.
- Individuals can use Aadhaar in place of PAN, subject to conditions.
Evaluation Criteria
Before issuing the certificate, the Assessing Officer assesses:
- Tax liability based on current and past four years’ income.
- Existing tax liability.
- Advance tax, TDS, and TCS already paid.
Special Provisions for Charitable Trusts & Institutions – Applicants such as trusts, research associations, and educational institutions must:
- File all due tax returns.
- Hold valid approval under the Income-tax Act.
Issuance & Validity of Certificate
- Issued directly to the deductor or to the applicant if the number of tax deductors exceeds 100 persons.
- Valid for the specified period unless cancelled earlier by the Assessing Officer.
- Only applies to the deductor mentioned in the certificate.
Prior Approval Requirements
For tax reductions exceeding:
- Rs. 50 lakhs (Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Pune).
- Rs. 10 lakhs (other locations),
Prior approval from the Commissioner of Income-tax (TDS) is required.