TDS section 197
This query is : Resolved
09 April 2017
A payment made to an insurance broker by an insurance company in SEZ , without deducting tds.
The reason TDS was not deducted under section 195H by the insurance company is that the broker is exempt from paying income tax as it is situated in SEZ.
Is it valid or the broker should get the"nil deduction certificate" from department so that tax is not deducted at the source ?
Message likes :
1 times
09 April 2017
broker is also situated in SEZ.
28 July 2025
Here's a clear explanation regarding TDS under Section 197 and your SEZ case:
---
### Situation:
* Payment made by an insurance company to an insurance broker located in a **Special Economic Zone (SEZ)**.
* The insurance company **did not deduct TDS under Section 195H** (TDS on commission or brokerage).
* Reason given: broker is **exempt from income tax as located in SEZ**.
---
### Key Points:
1. **Is the exemption from income tax automatic for SEZ units?**
* No.
* Units located in SEZ may be eligible for **tax holiday or exemptions under Section 10AA**, but this depends on fulfilling certain conditions and claiming the benefits officially.
* The broker must have claimed exemption formally by filing relevant tax returns.
2. **Is it valid to not deduct TDS without a ‘Nil Deduction Certificate’?**
* **No.**
* As per **Section 197 of the Income Tax Act**, if a deductee claims that tax is not deductible or should be deducted at a lower rate, they must apply to the Income Tax Department for a **"Nil deduction certificate" or lower deduction certificate**.
* Without this certificate, the deductor (insurance company) is required to deduct TDS as per applicable rates.
3. **Section 195H Applicability:**
* Section 195H mandates TDS on commission or brokerage payments by insurance companies.
* Even if the broker is in SEZ and enjoys exemption, TDS must be deducted **unless a certificate under Section 197 is produced**.
---
### What should be done?
* The broker should apply to the Income Tax Department for a **Nil or lower TDS deduction certificate under Section 197**.
* Until then, the insurance company should deduct TDS under Section 195H as per applicable rates.
* Otherwise, the insurance company risks being held liable for non-deduction of TDS.
---
### Summary:
| Aspect | Requirement |
| ------------------------------ | ----------------------------------------------------- |
| Broker in SEZ | May be exempt if claimed under Section 10AA |
| TDS Deduction by Insurance Co. | Must deduct unless Nil deduction certificate obtained |
| Section 197 certificate | Required to avoid or reduce TDS deduction |
| Risk of non-deduction | Deductor may be liable for TDS not deducted |
---
If you want, I can help you draft an application for Nil deduction certificate or guide you through the filing process. Would you like that?
---
### Situation:
* Payment made by an insurance company to an insurance broker located in a **Special Economic Zone (SEZ)**.
* The insurance company **did not deduct TDS under Section 195H** (TDS on commission or brokerage).
* Reason given: broker is **exempt from income tax as located in SEZ**.
---
### Key Points:
1. **Is the exemption from income tax automatic for SEZ units?**
* No.
* Units located in SEZ may be eligible for **tax holiday or exemptions under Section 10AA**, but this depends on fulfilling certain conditions and claiming the benefits officially.
* The broker must have claimed exemption formally by filing relevant tax returns.
2. **Is it valid to not deduct TDS without a ‘Nil Deduction Certificate’?**
* **No.**
* As per **Section 197 of the Income Tax Act**, if a deductee claims that tax is not deductible or should be deducted at a lower rate, they must apply to the Income Tax Department for a **"Nil deduction certificate" or lower deduction certificate**.
* Without this certificate, the deductor (insurance company) is required to deduct TDS as per applicable rates.
3. **Section 195H Applicability:**
* Section 195H mandates TDS on commission or brokerage payments by insurance companies.
* Even if the broker is in SEZ and enjoys exemption, TDS must be deducted **unless a certificate under Section 197 is produced**.
---
### What should be done?
* The broker should apply to the Income Tax Department for a **Nil or lower TDS deduction certificate under Section 197**.
* Until then, the insurance company should deduct TDS under Section 195H as per applicable rates.
* Otherwise, the insurance company risks being held liable for non-deduction of TDS.
---
### Summary:
| Aspect | Requirement |
| ------------------------------ | ----------------------------------------------------- |
| Broker in SEZ | May be exempt if claimed under Section 10AA |
| TDS Deduction by Insurance Co. | Must deduct unless Nil deduction certificate obtained |
| Section 197 certificate | Required to avoid or reduce TDS deduction |
| Risk of non-deduction | Deductor may be liable for TDS not deducted |
---
If you want, I can help you draft an application for Nil deduction certificate or guide you through the filing process. Would you like that?
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