TDS (Tax Deduction at Source) is a mechanism through which government is able to collect tax revenue in advance right at the time of receipt of income by an assessee. It helps the government to keep a check on tax evasion as it prescribes collection of tax right on the date of generation of income, rather than at a later date. So whenever any payment is made by one person to another and TDS provisions get triggered, payer shall have to deduct tax at the prescribed rate from the total amount to be paid.
However, what if the payee's gross income is less than 2.5 lakhs & he is not required to incur income tax as his gross income does not exceed the maximum amount not chargeable to tax? If TDS gets deducted in such a case, this will cause a great deal of inconvenience to the payee. First of all, a part of his income which may be very vital for him is getting blocked. Also in order to obtain the refund, he'll have to furnish the return of income which he is normally not required to file.
To solve this problem, Income Tax Act has inserted section 197 which enables assessees to obtain certificate of 'no deduction/ lower deduction of TDS' from the department.In this article, you will learn everything relating to process of obtaining the certificate:
CIRCUMSTANCES IN WHICH CERTIFICATE OF LOWER DEDUCTION OF TDS SHOULD BE OBTAINED
- Business is expected to incur losses
- Huge Losses are being carried forward from previous year
- TDS is being deducted at a high rate but tax slab attracted by assessee's income is lower
- Assessee is entitled to claim certain deductions/exemptions in that year
INCOMES COVERED BY CERTIFICATE UNDER SECTION 197
Certificate for lower deduction of TDS can be obtained for incomes covered by following provisions:
- Sec 192(Salary)
- Sec 193 (Interest on securities)
- Sec 194 (Dividend)
- Sec 194A (Other interests)
- Sec 194C (Contract)
- Sec 194D (Insurance Commission)
- Sec 194G (Commission etc. on sale of the lottery)
- Sec 194H (Commission/brokerage)
- Sec 194-I (Rent)
- Sec 194J (Income from Professional/technical services)
- Sec 194LA (Compensation on an acquisition of immovable property)
- Sec 194LBB (Income from units in investment fund)
- Sec 194LBC (income from investment in securitization fund) and
- Sec 195 (Income of non-residents)
Section 197 - PROCEDURE TO SUBMIT FORM 13
- Any assessee who wishes to apply for the certificate of No deduction of TDS or deduction at lower rate shall have to make an application in Form No. 13 as prescribed under the Income Tax rules, 1962
- Certain states like Karnataka have enabled online filing of Form 13 in order to facilitate faster processing of applications. Assessees of other states shall have to furnish the form manually to the Assessing Officer (AO) of their jurisdiction.
- AO is required to dispose off the application within a time period of 30 days from the end of the month in which application is received by him.
- If the application submitted is complete and AO is satisfied with the information and justification provided for deduction of lower TDS, he shall approve it and issue the certificate to the assessee. Every certificate issued has a unique 10 digit alpha-numeric no.
- To avoid deduction of TDS at a higher rate, the assessee will have to furnish a copy of AO's certificate (attached to the invoice raised) to the payer and if the payer is satisfied that his name is specifically stated in the certificate, he will deduct TDS at the rate mentioned in the certificate.
- While filing his TDS return, deductor is required to mention the TDS certificate no. & PAN of the deductee and validate it on the TRACES website.
DOCUMENTS & OTHER DETAILS TO BE SUBMITTED ALONG WITH FORM 13
- Copy of PAN card
- A projected income statement for the current financial year
- Copies of Returns of income filed along with enclosures)& copies of assessment orders if assessed, for the last 3 assessment years
- Copies of Financial Statements along with Audit Reports, if audited of last 3 years
- Details of tax paid in last 3 assessment years
- Details of payment of advance tax/TDS/TCS relating to current previous year till date
- Details relating to various incomes and their sources of the assessee
- TAN of parties who make payments to the assessee
VALIDITY OF CERTIFICATE
The certificate issued for nil/lower deduction of TDS pertains to that particular Financial year for which application has been made by the assessee. It is valid from the date of issue and expires at the end of that year (unless it is canceled by AO before its expiry)
Although Form 13 application can be submitted at any time during the year, it is recommended to furnish it at the commencement of the year itself.
OPTION OF SELF DECLARATION (FORM 15G/ 15H) IN CERTAIN CASES
As per Sec 197A, in case of certain incomes such as:
- Withdrawal of Provident fund (Sec 192A)
- Receipt of Life Insurance proceeds (Sec 194DA)
- Rental income (Sec 194-I)
- Interest from securities (Sec 193)
- Interest other than from securities (Sec 194A)
Assessee can give a self-declaration to the deductor in the prescribed form (Form 15G/15H) in order to avail nil deduction of TDS provided he satisfies the following conditions:
- Assessee is a resident individual/HUF
- Tax liability is nil
- If he is of age less than 60 years, his gross income (before deductions) must be less than the basic exemption limit (Rs 2.5 Lakhs)
To read more about Form 15G/15H: Click Here
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