The government has proposed to enable electronic filing and issuance of certificates for deduction of income-tax at a lower rate or nil rate. This amendment relates to Section 395 of the Income-tax Act and is aimed at reducing procedural hurdles, particularly for small taxpayers.
Existing Framework under Section 395
Currently, Section 395 of the Act governs the issuance of certificates allowing lower or no deduction of tax at source (TDS) and tax collection at source (TCS). Under the existing provisions, an applicant (payee) is required to physically apply to the Assessing Officer. Upon examination of the application and satisfaction that the recipient’s total income justifies a lower or nil deduction, the Assessing Officer issues the relevant certificate.
This process, though effective, often involves manual intervention and delays, adding to the compliance burden for taxpayers.
Proposed Amendment: Shift to Electronic Mode
To address these challenges, the government has proposed an amendment allowing taxpayers to file applications electronically for the issuance of lower or nil TDS certificates. The application will be submitted online before the prescribed income-tax authority, replacing the traditional manual process.
The authority may:
- Issue the certificate electronically, subject to the fulfilment of prescribed conditions, or
- Reject the application if conditions are not met or if the application is incomplete.
This move is expected to bring greater transparency, efficiency, and speed to the certification process.
Relief for Small Taxpayers
The proposed change is particularly beneficial for small taxpayers and businesses, who often face cash-flow constraints due to higher TDS deductions. By digitising the application and approval mechanism, the government aims to ease compliance, reduce interface with tax officers and ensure timely relief.
Effective Date
The amendment is proposed to come into effect from 1 April 2026, subject to enactment. [Clause 74]
Key Takeaway
The introduction of electronic verification and issuance of lower or nil TDS certificates marks another step towards digitisation of tax administration. Taxpayers should prepare to familiarise themselves with the prescribed online procedure and conditions once notified.
Official copy of the Clause is as follows
Enabling electronic verification and issuance of certificate for deduction of income-tax at lower rate or no deduction of income-tax
Section 395 of the Act pertains to issuance of certificates for deduction of tax at source (TDS) and tax collection at source (TCS) at nil or lower rate.
2. Sub-section (1) of the said section of the Act provides for issuance of certificate for deduction of tax at source at Nil or lower rates. As per the present provisions, the payee has to make an application before the Assessing Officer. Subsequent to the application, if the Assessing Officer is satisfied after due verification that the total income of the recipient justifies deduction of income-tax at any lower rates or no deduction of income-tax, he shall issue a certificate for lower or nil deduction of tax at source.
3. It is proposed to ease the compliance burden of small taxpayers by providing an option to the payee, to file the application for issuance of certificate for lower or nil deduction of income-tax electronically before the prescribed income-tax authority, which may issue the certificate subject to fulfilment of conditions as may be prescribed, or reject the application if prescribed conditions are not fulfilled or the application is incomplete.
4. The amendment will take effect from the 1st day of April, 2026.
[Clause 74]
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