Obtaining a NIL/Lower Rate TDS Certificate:
This article aims to answer WHY you should obtain a lower rate TDS Certificate, WHAT is a lower rate TDS Certificate, WHO can obtain a lower rate TDS Certificate & HOW you can obtain a lower rate TDS Certificate with our assistance.
WHY?
As the approaching Financial Year (FY) 2024–25 awaits, any person receiving income should assess the necessity of acquiring a nil/lower withholding tax certificate from Indian tax authorities. This is particularly important if they anticipate a tax refund in the upcoming FY, as obtaining the certificate can prevent the tying up of the taxpayer’s funds until the refund is successfully processed by tax authorities.
WHAT is a Nil / Lower Rate TDS Certificate?
The rules requiring deduction of tax at source (TDS) under the Income-tax Act, 1961, may create hardship for certain taxpayers who do not have a taxable income at all, such as the following cases:
· In case taxpayer has incurred a loss during the year, or
· Taxpayer has carried forward losses of earlier years which are available for set-off in the current year, or
· Taxpayer is eligible to claim tax-exemptions or deductions during the year, or
· In case of capital gain, the amount of gain / income might be lower than the base amount of consideration on which tax is required to be deducted at source.
In such cases, it is preferable for the taxpayer to apply for & obtain a nil / lower withholding tax certificate from the tax authorities, due to the following benefits:
· Funds of the taxpayer will not get blocked, as the payer of income would be legally bound to deduct tax at source at a nil / lower rate (than the rate prescribed under Income-tax Act),
· The taxpayer may not be required to submit its Income-tax Return (ITR) at the end of the FY, for the only purpose of claiming refund from the tax authorities
WHO can obtain Nil / Lower Withholding Tax Certificate?
The application under Section 197 can be filed by the recipient of income in cases where TDS is required under the following sections for specific categories of receipts:
· Section 195 — Income of non residents
· Section 193 — Interest on securities
· Section 194 — Dividends
· Section 194A — Interest other than interest on securities
· Section 194C — Contractors income
· Section 194D — Insurance commission
· Section 194G — Commission/remuneration/prize on lottery tickets
· Section 194H — Commission or brokerage
· Section 194-I — Rent
· Section 194J — Fee for Professional or technical services
· Section 194LA — Compensation on acquisition of immovable property
· Section 194LBB — Income in respect of units of investment fund
· Section 194LBC — Income in respect of investment in securitization trust
Submitting the application under Section 197 enables the recipient to seek approval for a lower or nil TDS rate, providing a more accurate reflection of their tax liability.
HOW? Procedure for submission of application:
The online application can be initiated by accessing the TRACES portal. Prepare and submit Form 13 on the portal, ensuring that all necessary and accurate details are provided for the initial processing of the application. It is recommended that taxpayers furnish complete and correct information in the first instance. The following documents are required to be submitted along with Form 13:
1. Signed Form 13
2. Copies of the return of income, including enclosures, and acknowledgment for the past three financial years
3. Copies of assessment orders for the previous three financial years
4. For individuals with business or professional income, copies of financial statements along with audit reports, if applicable, for the past three financial years
5. Projected profit and loss account for the current financial year
6. Computation of income statements for the previous three financial years and estimated computation for the current financial year
7. Copy of PAN card
8. Tax Deduction Account Number (TAN) of all parties responsible for paying you
9. E-TDS return acknowledgment for the past two financial years
10. Estimated income during the financial year
11. Any other documents depending on the nature of income
12. Details of any previous TDS default
If the application meets the satisfaction of the Assessing Officer (AO), the processing of the certificate issuance will be carried out. In practice, tax authorities often prefer granting a lower withholding tax certificate (rather than nil) as it enables the government to track payments and transactions within the economy.
The copy of this certificate can be attached to the invoice given to the deductor, and he can use this to justify the lower tax deduction.
Timeline for submission of application:
The income-tax provision does not specify a deadline for submitting an application under Section 197. Nevertheless, considering that Tax Deducted at Source (TDS) is applied to income throughout the ongoing financial year, it is recommended to initiate the application process at the commencement of the financial year for regular income scenarios.
For one-off incomes, it is advisable to make the application as and when the need arises. This approach ensures timely consideration and approval for a lower or nil TDS rate, aligning with the nature of the income.
Typically, the processing time for applications under Section 197 by Income Tax authorities averages around 3–4 weeks.
Validity of an Application Made Under Section 197:
Section 197 is issued for a specific financial year and remains valid from the date of issuance throughout that financial year, unless the assessing officer responsible for Tax Deducted at Source (TDS) cancels it before its expiration.
At SA & Co, We can assist you in:
· Providing guidance on the viability of obtaining a nil/lower withholding tax certificate, considering the specifics of each case.
· Preparing and submitting the application to the tax authorities.
· Representing before the income tax authorities and address any queries.
· Securing the nil/lower withholding tax certificate from the tax authorities.
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Hope this article was able to answer all your questions. If not, you can always contact us.
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