Digital Route for Lower Tax Deduction Certificates from April 2026

Overview

From April 1, 2026, under the New Income-tax Act, 2025, lower or nil Tax Deducted at Source (TDS) certificates will be issued via a new, digital, rule-based, and automated system. This system, aimed at reducing compliance burdens and improving cash flow for taxpayers, replaces manual, officer-level approvals with a faster, online process. 

Lower Deduction Certificate

A Lower Tax Deduction Certificate (LDC), issued under Section 197 of the Income-tax Act, allows taxpayers to receive income after deduction of tax at a reduced rate or Nil rate instead of the standard TDS rate.

This is useful where the taxpayer’s actual tax liability is lower than the normal TDS rate, preventing excess tax deduction and refund delays.

Key Features of the Digital Route from April 2026

Online Application Mechanism

Taxpayers will be able to apply electronically through the Income-tax portal instead of approaching officers physically.

Electronic Verification

Applications will be verified digitally using:

• Digital Signature Certificate (DSC)
• Electronic Verification Code (EVC)

Faceless Processing

A prescribed authority will evaluate the application without direct interaction.

Faster Processing

Automation will reduce delays and improve transparency.

Reduced Compliance Burden

Small taxpayers, freelancers, startups, and NRIs will benefit significantly.

Step-by-Step Process to Apply Digitally

Step 1: Login to Income-tax Portal

• Access your account using PAN credentials.

Step 2: Submit Online Application

• File the prescribed form (currently Form 13, likely updated in future).

Step 3: Upload Supporting Documents

Key documents include:

• Estimated income for the current year
• Previous years’ ITRs
• Computation of income
• Details of TDS already deducted
• Tax payments and advance tax
• Details of exemptions or deductions

Step 4: Electronic Verification

Verify using DSC or EVC.

Step 5: Departmental Review

The authority examines:

• Estimated total income
• Past compliance
• Pending tax demands
• Advance tax and TDS credits

Step 6: Issue or Reject Certificate

If approved:

• Certificate specifies the lower or Nil rate.
• Deductor must follow the rate.

Who Can Apply?

The digital route is beneficial for:

Residents

• Freelancers and professionals
• Businesses with lower profit margins
• Individuals claiming exemptions
• Senior citizens with low taxable income

Non-Residents (NRIs)

• Property sellers
• Rental income earners
• Interest or royalty recipients

Startups and MSMEs

• Companies with initial losses
• Entities with tax holidays

Types of Income Covered

Lower TDS certificates can be obtained for:

• Salary
• Interest income
• Rent
• Professional fees
• Commission
• Dividend
• Capital gains
• Technical services
• Property sale transactions

FAQs

When will the digital route become effective?

From 1 April 2026, applicable for FY 2026-27.

Is physical submission still required?

No, the process will be primarily electronic.

Can both residents and NRIs apply?

Yes, both categories are eligible.

What is the validity of the certificate?

Usually valid for the financial year.

Can the certificate be cancelled?

Yes, if conditions change or incorrect details are provided

Will it reduce refund delays?

Yes, as tax is deducted correctly at source.

Can startups benefit from this?

Yes, especially those with initial losses.