Nil TDS certificate is a document which is issued by the IT Department to offers relief to taxpayers both for residents and NRIs.
It allows certain taxpayers to receive payments without any tax being deducted.
Who can apply?
The taxpayer can apply this certificate to avoid TDS whose income is below the taxable limit or have tax exemptions.
Major Change in New Tax Bill 2025
Application For Nil TDS Certificates Removed
The proposed Income Tax Bill 2025 has removes the option to obtain a Nil TDS certificate for all the taxpayers, including Indian residents and NRIs.
This is due to the deletion of the words “no deduction” in the new law, specifically in Clause 395.
Certificates Only Available For Lower TDS
Now taxpayers can only apply for a Lower TDS certificate which means tax will still be deducted, but at a reduced rate compared to the standard TDS rate but there will be no nil deduction.
Purpose of This Change
- To help government to track income better by removing Nil TDS certificates.
- To prevent taxpayers from underreporting their income.
How Does This Impact Indian Residents?
- It becomes mandatory to deduct TDS even if the taxpayers income is below the taxable limit.
- Filling also becomes mandatory if too much tax is deducted.
Now taxpayers need to file an ITR to claim a refund which adds an extra burden compared to the earlier system, where a Nil TDS certificate avoided deductions entirely.
How Does This Impact NRIs?
Now, NRI's will not get a Nil TDS certificate but only Lower TDS certificate if their income was exempt or they had no tax liability.
Burden For NRIs
Filing ITR becomes mandatory to claim refunds for any excess TDS deducted.
How To Apply for a Lower TDS Certificate?
- Process: You can apply by using Form 13 on the TRACES website by providing details such as income, tax liability, and reasons for requesting a lower rate.
- Documents Required: PAN, income details, and proof of exemptions or losses. NRIs may need a Tax Residency Certificate if claiming DTAA benefits.
Conclusion
The Income Tax Bill 2025’s removal of the Nil TDS Certificate is a step toward stricter tax monitoring but adds compliance burdens for both Indian residents and NRIs. Taxpayers will face mandatory TDS deductions and must file ITRs to claim refunds, even if they owe no tax.
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