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November 6, 2020

Process for Lower or No Tax Certificate under Income tax

by CA Shivam Jaiswal in Income Tax

Process for Lower or No Tax Certificate under Income tax

TDS stands for ‘Tax Deducted at Source’. The concept of TDS was introduced with an aim to collect tax at the source from where an individual’s income is generated. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

TDS is applicable on various incomes such as salaries, interest received, commission received, dividends etc. TDS is not applicable to all incomes and persons for all transactions. Different TDS rates have been prescribed by the Income Tax Act for different payments and different categories of recipients. 

Are TDS provisions applicable even when a taxpayer has no taxable income?

This process of deducting tax at source may create hardships to a few taxpayers who may not have taxable income at all. Such situations could arise where:

  • Taxpayer has incurred a loss for the current year
  • Taxpayer has carried forward losses of previous years available for set off in the current year
  • Taxpayer is eligible to claim certain exemptions or deductions during the year
  • Taxpayer eligible for weighted deduction of expenditure
  • Taxpayer eligible for deductions of profits (U/s. 10 or under chapter VI A etc.)

The above could result in the taxpayer not having any taxable income at all for the year. While TDS rates are determined in general considering larger income population as a whole and income category, it might lead to undue difficulties to certain taxpayers who would not have any taxable income yet tax gets deducted at source for them which they end up claiming as refund. 

With an objective to remove such undue hardship on such taxpayers, income tax law provides for an option to obtain a certificate from the Assessing officer confirming either a lower rate of TDS compared to the rate specified under the law or a NIL rate of TDS, depending on facts and circumstances of each case based on the application made. Provisions of section 197 of the Income Tax Act, 1961 provides taxpayers the facility of lower tax rate or NIL deduction of TDS (TDS exemption). This section maintains a balance between the requirement of cash flow to the taxpayer and realizing the government dues at the earliest.

What are Section 197 and 197A?

  • Section 197 and 197A of the Income Tax Act, 1961 provides for the facility of NIL or lower tax rate deduction of TDS (or TDS exemption).
  • If at the time of filing returns, the tax payer realizes that his tax liability is considerably less than what he actually paid, then he can claim the refund for the same.
  • However, in case where the tax payer thinks that his tax liability for the year will be NIL or less than TDS rate applicable on a particular source of income, section 197 and 197A permits him to apply for a lower rate of TDS or no TDS.
  • Taxpayer claiming low rate or no TDS needs to submit the application to the Assessing Officer (AO) in the prescribed form 13.
  • In case the taxpayer does not apply for the certificate, they can still claim the refund in their annual return.

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What is Form 13?

  • The application for lower or no TDS u/s 197 is to be made by the taxpayer to AO in a predefined format i.e. Form 13.
  • Once the application complete in all aspects is submitted to jurisdictional assessing officer (TDS), application shall be disposed of within 30 days from the end of the month in which such application is received.
  • Assessing Officer will review the documents/information submitted and may ask for further queries and documents before issuing the certificate/rejecting the application.

What Documents are to Submitted with Form 13?

  • Copies of return of income along with enclosures and acknowledgment for previous 3 financial years
  • Copies of assessment orders for previous 3 financial years
  • In case of assessee having business or profession income, copies of financial statement along with audit report if any for previous 3 financial years
  • Projected profit and loss account for the current financial year
  • Computation of income statement for previous 3 financial years and estimated computation for the current financial year
  • Copy of PAN card
  • Tax Deduction Account Number of all parties responsible for paying you
  • E-TDS return acknowledgment for previous 2 financial years
  • Estimated income during financial year
  • Any other documents depending on nature of income
  • TDS default details

What is the Procedure for electronic filing of Form 13?

The tax-payer/Deductee shall login in to the TRACES website for submission  of application in Form 13 electronically, for grant of certificate for deduction of Income-tax at any lower rate or no deduction of Income-tax under Section 197 as per the procedure specified below:- 

  • The tax-payer/Deductee who is not registered at TRACES shall be first required to register at TRACES  (www.tdscpc.gov.in) for login and filing application in Form 13.
  • The tax-payer/Deductee shall submit the Form 13 along with supporting documents electronically:-
  • under digital signature; or
  • Through electronic verification code.
  • After an online request for lower/no deduction certificate  has  been submitted successfully, it shall reach the TDS-Assessing Officer on his/her ‘TRACES AO Portal’
  • The taxpayer/Deductee can track the status of his / her application through option ‘Track Request for Form 13 under the tab ‘Statement/Forms’.
  • Once the Assessing office satisfied with the application in order and the income justifies for the lower/nil tax deduction, the Assessing officer will approve the application
  • The same will be communicated to the taxpayer and deductors (through their TAN number) about the Lower/nil tax details along with the applicable date.

What is Form 15G and Form 15H?

  • Form 15G is a declaration that can be filled out by bank fixed deposit holders (individuals less than 60 years of age and HUF) to ensure that no TDS is deducted from their interest income for the fiscal.
  • Self-declaration under the Form 15H is to be submitted by the assessee who is above 60 years of age and whose tax liability is supposed to be nil. No deduction of tax at source is made at the time of disbursement of income to such assessee.
  • The certificate issued under Section 197 is only valid for the assessment year mentioned in the certificate unless it is cancelled or the date mentioned on the certificate expires.

It is important to remember that, the lower/Nil certificate will be only valid for the particular period mentioned in the certificate and the income limit which was specified in the certificate for the respective deductor.

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