Lower or No Tax certificate under Income tax- Procedure

The concept of TDS under the Income Tax Act is common and the objective of this concept is to collect tax from the very source of income. As per the TDS concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whom Income Tax has been deducted at source would be entitled to get a credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor. This same credit can be adjusted with the tax payable by the deductee in their Income tax return.

TDS is the procedural aspect by the Government to collect the taxes. However the TDS deduction is based on some specific percentage as prescribed in the relevant section subject to some specified conditions, So TDS deduction some time leads excess tax deduction for the deductee when compared to the actual income tax payable by them.  When the deducted tax is excess when compared to the actual tax payable by the deductee, this will create the two impacts i.e

1. The working capital block for the deductee, because the actual tax payable is less than the tax deducted amount, the deductee has to wait to get the excess deducted tax till the actual income tax return filing and claim as a refund.
2. Since the tax amount is deducted in excess, the Government is liable to pay the interest on the excess amount deducted amount as per the provisions of income tax till the refund of excess tax deducted.

To avoid the above impacts, we can apply for the lower tax deduction certificate to the Income Tax Department as per Section 197 of the Income Tax Act.

According to section 197, a person can apply with the Assessing officer for the lower tax or no tax certificate in the prescribed form 13 and if the Assessing Officer is satisfied that the total income of the receipt justifies the deduction of income-tax at any lower rates or no deduction of income-tax as the case may be, the Assessing Officer may issue the lower tax or nil tax certificate to the person applied for the same.

Form 13, we can apply through online application at the TRACES portal by registering with the taxpayer PAN number

Lower or Nil tax deduction certificate application enabled by the department at TRACES portal before the start of any previous year such as February or March month however we can apply for the certificate at any time before the end of the previous year, but the certificate will be provided by the department always with effective from prospective not retrospective.

Details required to apply for the lower/nil deduction certificate:

1. Audited or Provisional financials for the two years immediately preceding to the previous year for which the application made under this provision
2. Projected financials for the previous year for the application made
3. Last 4 assessment years Income computation details along with assessment order if any received
4. Provisional Income tax computation for the previous year immediately preceding the previous year for the which the certificate sought under this provision
5. Projected income tax computation for the previous year
6. Customer wise ( Deductors) details with the projected income/ Sales from them and the relevant income nature and TDS section applicable to that income
7. TAN, PAN, and address details for the deductors
8. The expecting or seeking TDS deduction rate under this application

In addition to the above, we need to ensure that there should not be any tax demand is pending under any of the income tax provisions including TDS defaults if any.

Once the above details are ready, you can log in to the TRACES portal and fill the application and upload the relevant documents and submit the application.

Once the Assessing office satisfied with your application in order and your income justifies for the lower/nil tax deduction, the Assessing office will approve your application and it will be communicated to you and your deductors ( through their TAN number) about your Lower/nil tax details along with the applicable date.

The lower/Nil certificate only valid for the particular period mentioned in the certificate and the income limit which is specified in the certificate for the respective deductor.