The Government has released Draft Form No. 128, prescribing the format for applying for a certificate for lower or nil deduction of income-tax (TDS) and lower collection of income-tax (TCS) under Section 395(1) and 395(3) of the Income-tax Act, 2025.
The draft form lays down a structured electronic application process for taxpayers seeking relief from higher tax deductions or collections at source, ensuring improved compliance and transparency.
What Is Draft Form No. 128?
Draft Form No. 128 is an electronic application form to be filed by a person seeking:
- No deduction of tax at source
- Deduction of tax at a lower rate
- No collection of tax at source
- Collection of tax at a lower rate
The certificate, once issued, authorizes the payer or seller to deduct or collect tax at the approved lower or nil rate during the relevant tax year.
Who Can Apply?
The form categorizes applicants into the following groups:
- Registered Non-Profit Organizations (NPOs)
- Specified entities referred to under section 263(9)(c)
- Persons carrying on business or profession
- Other eligible persons
This classification ensures clarity in processing and verification.
Key Components of Draft Form No. 128
The draft form is divided into multiple structured parts:
Part A - Applicant Details
Includes:
- Name and address
- PAN
- Residential status
- Contact information
- Status (individual, company, firm, trust, etc.)
Part B - Nature of Application
Applicants must specify whether the certificate is sought:
- For the payer (with details in Annexure I)
- For themselves where payer details are unavailable (Annexure II)
- For lower TCS collection (Annexure III)
Part C - Existing Tax Liabilities
Applicants must disclose:
- Outstanding liabilities under the Income-tax Act, 2025 and 1961
- Advance tax/self-assessment tax details
- Demand notices issued but unpaid
- Liabilities as deductor or collector
Part D & E - Declarations
Separate declarations apply to:
- Registered NPOs and specified entities
- Other applicants
Applicants must confirm:
- Filing of returns for the last four tax years
- That income is not includible in another person’s total income under sections 96–99
Part F - Verification
A solemn declaration affirming correctness of information.
Annexures: Detailed Income Information Required
The draft form requires detailed reporting depending on the request type:
Annexure I - For TDS (with Payer Details)
- Relevant section under which TDS applies
- TAN/PAN of payer
- Estimated income for the tax year
- Requested rate of deduction
Annexure II - For TDS (Without Payer Details)
- Estimated income
- Justification note for lower/nil deduction
Annexure III - For TCS Applications
- Section under which TCS applies
- TAN of seller/lessor/licensor
- Estimated amount payable
- Requested rate of collection
Applicants must fill amounts in INR and upload necessary computations and exemption notes.
Compliance Conditions to Note
To qualify for the certificate, applicants must:
- Have filed income tax returns for the preceding four tax years (where applicable)
- Disclose prepaid taxes including advance tax, TDS, and TCS as per AIS
- Attach computation of estimated total income for the relevant tax year
- Provide justification for exemption claims
Non-compliance or concealment may lead to rejection.
Why This Draft Form Matters
The introduction of Draft Form No. 128 signals a move toward:
- Digitized and standardized TDS/TCS relief applications
- Greater data alignment with AIS and past return filings
- Improved scrutiny of estimated income and tax liabilities
- Transparency in tax deduction and collection processes
This structured reporting mechanism is expected to reduce disputes and streamline issuance of lower/nil certificates.
Impact on Businesses and Professionals
For businesses, consultants, freelancers, NPOs, and specified entities, this form provides:
- Relief from excessive TDS affecting working capital
- Certainty in tax outflows
- A defined compliance framework under the Income-tax Act, 2025
However, applicants must ensure accurate disclosures and strong justification for lower deduction claims.
Conclusion
Draft Form No. 128 formalizes the procedure for obtaining lower or nil TDS/TCS certificates under Section 395. By requiring detailed disclosures on income, liabilities, and prior compliance history, the government aims to balance taxpayer convenience with revenue safeguards.
Taxpayers planning to apply should review their estimated income, past filings, and outstanding liabilities before submission to avoid processing delays.
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