Tds- lower deduction certificate us 197
This query is : Resolved
26 May 2016
Dear Experts,
Suppose a vendor has applied for a Lower deduction certificate mentioning the nature of income as Contractor etc & provided a lower deduction certificate @ 1.5 % .
Whereas actual nature of payment is Commission & Brokerage for which rate was 10 % till FY 2015-2016.
If we deduct TDS @ 1.5 % as per the certificate provided to us even though the nature of payment is different ( i.e. we are paying as Commission Brokerage).
Will we be a defaulter for lower deduction.
Please give your valuable comments & advice.
Thanks in Advance
Raj.
Suppose a vendor has applied for a Lower deduction certificate mentioning the nature of income as Contractor etc & provided a lower deduction certificate @ 1.5 % .
Whereas actual nature of payment is Commission & Brokerage for which rate was 10 % till FY 2015-2016.
If we deduct TDS @ 1.5 % as per the certificate provided to us even though the nature of payment is different ( i.e. we are paying as Commission Brokerage).
Will we be a defaulter for lower deduction.
Please give your valuable comments & advice.
Thanks in Advance
Raj.
26 May 2016
As per 197 it will be clearly mentioned lower deduction allowed for particular nature of deduction, also eligible amount and period will be also mentioned, same can be verified online by Traces by mentioning approval reference code.
but same can not be adjusted to anyother income which is not specified in 197, For same applicable TDS to be deducted.
but same can not be adjusted to anyother income which is not specified in 197, For same applicable TDS to be deducted.
27 May 2016
The matter is for the same payment the Nature of expenses as mentioned in the certificate u/s 197 & as pwer agreement with the vendor varies .
We are paying only Commission Only .
But the nature of expenses mentioned in the certificate is : Contractor etc "
And we have deducted TDS as per the certificate at lower rate.
So my query is will we be a defaulter for lower deduction .
( It might a case that the vendor has obtained the Certificate us 197 by Fraud by misrepresenting the nature of Income as contractor service to the AO)
Give give your valuable opinion.
We are paying only Commission Only .
But the nature of expenses mentioned in the certificate is : Contractor etc "
And we have deducted TDS as per the certificate at lower rate.
So my query is will we be a defaulter for lower deduction .
( It might a case that the vendor has obtained the Certificate us 197 by Fraud by misrepresenting the nature of Income as contractor service to the AO)
Give give your valuable opinion.
27 July 2025
Great question! Here's a clear summary on **TDS lower deduction certificates under section 197** and your concern:
---
### Key points regarding Section 197 Lower Deduction Certificate (LDC):
1. **Nature of Income Specified in LDC**:
The certificate issued under **Section 197** clearly specifies:
* The **nature of income** for which the lower or nil deduction is allowed (e.g., "Contractor services", "Commission", etc.)
* The **rate of deduction** allowed
* The **period** for which the certificate is valid
2. **Strict Applicability**:
The **lower deduction certificate is valid only for the specific nature of income mentioned** in the certificate. You **cannot apply the reduced rate for a different nature of payment**.
3. **Your Situation**:
* The LDC mentions the nature of income as **"Contractor services"** with a lower rate of 1.5%.
* However, the payment you are making is actually for **Commission/Brokerage**, which has a different prescribed TDS rate (10% for FY 2015-16).
* Applying the 1.5% rate meant for "Contractor" income to "Commission" payments is **not valid**.
4. **Consequences of Deducting at Lower Rate Incorrectly**:
* If you deduct TDS at 1.5% on Commission payments by relying on an LDC that is for Contractor services, you **may be treated as a defaulter** for **not deducting TDS at the correct rate** under the Income Tax Act.
* The tax department can hold the deductor liable for the shortfall in TDS deduction.
5. **If Vendor Obtained the Certificate by Misrepresentation**:
* If the vendor obtained the LDC fraudulently by misrepresenting the nature of income, the deductor is still responsible for deducting tax correctly as per the actual nature of payment.
* Deductor cannot blindly rely on such certificate if it is inconsistent with the payment made.
6. **Due Diligence Recommended**:
* You should verify the nature of payment in the certificate against the actual nature of payment.
* If they don't match, deduct TDS as per actual nature (Commission in your case) to avoid liability.
---
### Advice:
* **Do NOT apply the lower deduction certificate for payments not covered in it.**
* Deduct TDS at the correct rate applicable for **Commission/Brokerage (10% for FY 2015-16)**.
* Request the vendor to apply for a proper LDC specifying Commission income if they want lower deduction on that payment.
* Maintain documentation of your due diligence to show you deducted TDS correctly based on actual facts.
---
### Relevant Rule & Case Law:
* **Section 197**: Certificate specifies the nature of income and applicable rate. No cross-use for other income heads.
* **CBDT Circulars** confirm that lower deduction certificates are **strictly nature-specific**.
---
If you want, I can help draft a letter/email to the vendor asking for clarification or proper certificate for Commission income. Would you like that?
---
### Key points regarding Section 197 Lower Deduction Certificate (LDC):
1. **Nature of Income Specified in LDC**:
The certificate issued under **Section 197** clearly specifies:
* The **nature of income** for which the lower or nil deduction is allowed (e.g., "Contractor services", "Commission", etc.)
* The **rate of deduction** allowed
* The **period** for which the certificate is valid
2. **Strict Applicability**:
The **lower deduction certificate is valid only for the specific nature of income mentioned** in the certificate. You **cannot apply the reduced rate for a different nature of payment**.
3. **Your Situation**:
* The LDC mentions the nature of income as **"Contractor services"** with a lower rate of 1.5%.
* However, the payment you are making is actually for **Commission/Brokerage**, which has a different prescribed TDS rate (10% for FY 2015-16).
* Applying the 1.5% rate meant for "Contractor" income to "Commission" payments is **not valid**.
4. **Consequences of Deducting at Lower Rate Incorrectly**:
* If you deduct TDS at 1.5% on Commission payments by relying on an LDC that is for Contractor services, you **may be treated as a defaulter** for **not deducting TDS at the correct rate** under the Income Tax Act.
* The tax department can hold the deductor liable for the shortfall in TDS deduction.
5. **If Vendor Obtained the Certificate by Misrepresentation**:
* If the vendor obtained the LDC fraudulently by misrepresenting the nature of income, the deductor is still responsible for deducting tax correctly as per the actual nature of payment.
* Deductor cannot blindly rely on such certificate if it is inconsistent with the payment made.
6. **Due Diligence Recommended**:
* You should verify the nature of payment in the certificate against the actual nature of payment.
* If they don't match, deduct TDS as per actual nature (Commission in your case) to avoid liability.
---
### Advice:
* **Do NOT apply the lower deduction certificate for payments not covered in it.**
* Deduct TDS at the correct rate applicable for **Commission/Brokerage (10% for FY 2015-16)**.
* Request the vendor to apply for a proper LDC specifying Commission income if they want lower deduction on that payment.
* Maintain documentation of your due diligence to show you deducted TDS correctly based on actual facts.
---
### Relevant Rule & Case Law:
* **Section 197**: Certificate specifies the nature of income and applicable rate. No cross-use for other income heads.
* **CBDT Circulars** confirm that lower deduction certificates are **strictly nature-specific**.
---
If you want, I can help draft a letter/email to the vendor asking for clarification or proper certificate for Commission income. Would you like that?
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