Section 197 of the Income Tax Act, 1961 provides for the facility of NIL deduction of tax at source or at a deduction at a Lower rate of tax. To avail of this benefit the assessee whose TDS is likely to be deducted on certain receipts should make an application before the TDS Assessing Officer who has a jurisdiction over his/ her/ its case. The assessee/ deductee concerned may apply for a certificate for Nil or lower deduction of TDS on their receipts in Form No 13 . Delays in this matter can be avoided by filing the prescribed form correctly and submitting the required details along with the form itself.
1. Every finance professional are making estimated accounts of the company and based on that you can also prepare the estimated computation of total income assuming same adjustments as done for the previous year.
2. Determine the expected tax liability of the company
3. Determine the TDS deducted and advance tax paid till date and also determine the expected TDS on the revenue for the balance period of the financial year.
4. Based on the above, review the tax payable/ refundable periodically.
5. In case there is expected tax refundable for the company, the finance professional should not block this company’s fund in the hands of Income tax department for next 2-3 years and should apply for lower TDS application to the TDS department immediately.
6. For applying lower TDS certificate to the TDS department, following documents are required to be submitted :
* Covering letter disclosing nature of business of the company, reason for company should get lower TDS certificate and also details of the party with their correct address & TAN.
*New Form 13
*Estimated financials & computation of Total Income
*Audited financials for the last 3 Years
*Tax Audit Report of the Last 3 Years
*Income tax return acknowledgment of last 3 Years
*E TDS return acknowledgment for last 2 years of all the 4 quarters.
*In case of any short payment of TDS in last 3 years, proof of the payment of TDS.
*Copy of application & certificate obtained for earlier years.
*No Dues Certificate from Your Assessing officer in respect of Income tax
7. After submitting the aforesaid application to the TDS department , the AO will review your documents and they may ask further queries & documents to satisfy that your company is eligible for getting the lower TDS certificate.
8.It must be noted that AO is not bound to issue TDS certificate, once the application had been filed. The AO issue the certificate based on the merit on case to case basis.
9.You must provide the correct TAN of all the parties for whom you want the TDS certificate as now a days, department are issuing only system generated certificate based on the TAN.
10.10. As we all know that, now department are not issuing nil TDS certificate to anyone. Hence, you must apply only for lower TDS certificate only and must mention the lower rate as required.
As per the provisions of the Income Tax Act, TDS is required to be deducted at the time of making any payment. This TDS is deducted by the person who is making the payment and is required to be deposited with the Income Tax Dept before the due date of depositing TDS.
In some circumstances, a case may arise that TDS is being deducted from the income of the receiver, but his total tax liability computed at the end of the year as per the Income Tax Slab Rates is less than the TDS deducted. This is very common in case of sale of property by NRI wherein more than 20% TDS gets deducted on the entire sale value instead of being deducted on the Capital Gains.
In such cases, where such high TDS is being deducted – the TDS is first deducted and then the recipient of income claims a refund of TDS at the time of filing of his Income Tax Return. This is a time consuming and burdensome process as Income Tax Returns can only be filed after the end of the Financial Year. Moreover, if the amount of refund is higher, then the refund would not be processed easily and may take additional time to be processed by the Income Tax Dept.
To reduce the hardships faced by the taxpayers, the govt has inserted Section 197 which states that in case the total tax liability at the end of the person whose TDS is being deducted is less than the amount of TDS that is being deducted, he may file an application to the Income Tax Officer to give him a certificate for Nil/ Lower deduction of TDS.
An application for Nil/ Lower deduction of TDS is required to be filed in Form 13 to the Income Tax Officer, and the tax officer on being satisfied that lower deduction of TDS is justified shall issue a certificate for the same under Section 197.
Once such a certificate is granted under Section 197, the TDS will be deducted as per the TDS Rate stated in the Certificate. This certificate would be issued online and the taxpayer can download the same from the Income Tax portal
Nil/ Lower deduction of TDS is only applicable once the Income tax officer has issued a certificate for the same in response to an application made in Form 13. This certificate is required to be submitted to the person who is deducting the TDS. This certificate is required in all cases except where payment is being made as Interest on Securities or Interest on Fixed Deposits under Section 197A. In such cases, Form 15G/ Form 15H is required to be submitted.
An application for Nil/ Lower deduction of TDS under Section 197 is required to be made by the taxpayer to the income tax officer in Form 13. Various details are required to be furnished by the taxpayer in this Form 13, some of which include:-
1.Name and PAN No.
2.Details regarding the purpose for which the payment is being received
3.Details of income of the last 3 years and the projected current year’s income
4.Details of payment of tax of the last 3 years
5.Details of tax deducted/ paid for the current year
6.Estimated Tax Liability for the current year
A draft copy of Form 13 can be viewed here – Draft Form 13
The certificate so issued by the income tax officer under Section 197 is valid only for the year mentioned in the certificate unless cancelled before the expiry of the date mentioned in the certificate. By default, all certificates are applicable from the date of issuance of the certificate till the 31st March.
Moreover, this is not a blanket certificate and the deductor shall make a lower deduction of TDS only if his name is specifically mentioned in the Certificate which is to be issued on an application made to the Income Tax Officer in Form 13.
Other Relevant Points regarding Form 13 for Nil/ Lower Deduction of TDS
1.Application in Form 13 can only be filed for payments on which TDS is required to be deducted under Section 192, Section 193, Section 194, Section 194A, Section 194C, Section 194D, Section 194G, Section 194H, Section 194I, Section 194J, Section 194K, Section 194LA, Section 194BB, Section 194LBC, Section 194M, Section 194-O and Section 195. If the payment is required to be deducted under any other section of the Income Tax Act, then application in Form 13 cannot be filed.
2.The Lower/ Nil TDS Certificate would only be issued provided the Income Tax Officer is satisfied that the income of the taxpayer justifies lower deduction of TDS.