Lower deduction certificate

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 August 2011 Dear Sir,

I have received a lower deduction certificate from my vender to deduct TDS @2% instead of 10%.

The amount limit mentioned in certificate is of Rs. 10,00,000 ( ten lakhs only).

What shall be situation if during the year the transaction with that vendor reaches to 11 lakhs.

Can I deduct lower TDS above Rs. 10 lakhs or will I have to deduct normal TDS on the amount above 10 lakhs.

Please suggest

Thanks in advance

CA Amit Joshi

CA Amit Joshi (Expert)
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24 August 2011 Dear author,
As per my knowledge you have to deduct TDS @ 2% up-to 10lacks and 10% over and above 10 lacks.
Opinion of other experts are also invited.

Message likes : 1 times

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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24 August 2011 yes. lower deduction certificate apply only Rs.10 lakhs,in case cross Rs.10 Lakh then normal TDS rate

Querist : Anonymous

Querist : Anonymous (Querist)

29 August 2011 I came to know from some one that the amount mentioned in lower deduction certificate is just a tentative amount, and if the transactions increase that limit, still we have to deduct lower TDS as per certificate

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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03 August 2024 ### Handling Lower Deduction Certificate with Limit Exceeded

When you receive a lower deduction certificate under Section 197 of the Income Tax Act, it specifies the maximum limit up to which the lower TDS rate is applicable. Here’s how to handle the situation if your transactions exceed the specified limit:

1. **Lower Deduction Certificate Details:**
- **Certificate Limit**: The lower deduction certificate specifies a maximum amount up to which the lower TDS rate (e.g., 2% instead of 10%) is applicable. In your case, it is Rs. 10,00,000.
- **TDS on Amount Exceeding the Limit**: If your transactions exceed the limit mentioned in the certificate, you should follow these guidelines:
- **Up to the Limit**: For transactions up to Rs. 10,00,000, deduct TDS at the rate mentioned in the certificate (2% in your case).
- **Above the Limit**: For any amount exceeding Rs. 10,00,000, you must deduct TDS at the standard rate applicable under the Income Tax Act (10% in your case).

2. **Tax Deduction for Amount Exceeding the Limit:**
- **Compliance**: It is essential to comply with the limits specified in the lower deduction certificate. Deduct TDS at the lower rate only up to the limit mentioned. For amounts exceeding this limit, deduct TDS as per the standard applicable rate.
- **Rationale**: The limit specified in the certificate is generally based on the anticipated annual turnover or income. If your transactions exceed this amount, the lower rate is not applicable for the excess amount.

3. **Tentative Amount Clarification:**
- **Practical Application**: The certificate’s specified amount is indeed a maximum limit. If the actual transactions exceed this limit, the excess transactions are subject to standard TDS rates.
- **Documentation**: Maintain records of the transactions and ensure that TDS is deducted at the correct rates. The lower deduction certificate does not extend to amounts beyond the specified limit.

4. **Action Required:**
- **Deduct TDS Properly**: Ensure that you deduct TDS at 2% for transactions up to Rs. 10,00,000 and at the standard rate (10%) for any amount above Rs. 10,00,000.
- **Inform Vendor**: Communicate with the vendor about the TDS deducted and the amount above the limit, so both parties are aware of the compliance with the TDS provisions.

5. **Review and Update Certificate:**
- **Renewal or Update**: If you anticipate that the limit will be exceeded in future transactions, consider applying for a revised lower deduction certificate with a higher limit or consult the Income Tax Department for guidance.

### Summary
- **Up to Limit**: Deduct TDS at the rate mentioned in the certificate (2%) for transactions up to Rs. 10,00,000.
- **Above Limit**: Deduct TDS at the standard rate (10%) for transactions exceeding Rs. 10,00,000.

Always ensure that you comply with the specific terms of the lower deduction certificate and the applicable tax laws.

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