What Is Lower Tax Deduction Certificate?

. 7 min read
What Is Lower Tax Deduction Certificate?

What Is Lower Tax Deduction Certificate Issued By The Income Tax Authority?

  • According to the provision of Section 197, Income Tax Act, taxpayers of the country have been given a facility of either avail of the benefit of low rate tax deduction or NIL deduction of TDS.
  • This section helps in maintaining a delicate balance between the government dues and cash flows required by the taxpayer.
  • The taxpayer is allowed to opt for a NIL or lower TDS certificate if his or her final tax liabilities are either nil or lower.
  • The taxpayer can be foreign companies or non-residents also who are operating their business from India and are having a permanent establishment.
  • All those foreign companies who do not have their bank accounts in India file a request for Lower or NIL TDS certificate.

What is TDS?

  1. According to the Income Tax Act, TDS is tax deducted at the source.
  2. It is an advance tax that's required and mandated to pay to the Government of India on a periodical basis.
  3. A deductee can claim the TDS after ITR return in the form of a tax refund.
  4. It is a small percentage of the amount deducted by the employer from the salaries of the employee or either deducted from interest earned on investments, commissions, or professional fees.
  5. A person or company who is accountable for deducting TDS has the responsibility of depositing the collected tax with the government and, in return, shares the tax deduction certificate with the employee.
  6. Irrespective of any mode of payment, TDS deduction has to be done and is to be linked to the PAN of both parties.
  7. The rate of TDS starts at 1% and goes up to 30 percent based on gross income.

What Are The Different Forms Of TDS?

  • Section 192: Salaries
  • Section 193: Interest earned on securities
  • Section 194C: Contractor payments
  • Section 194D: Commission earned from insurance
  • Section 194G: Commission or brokerage
  • Section 194LA: When any immovable property gets transferred
  • Section 194I: Rent payments
  • Section 194LBB: Interest earned on bank deposits

Benefits of Tax deducted at Source

  • Helps in preventing tax evasions: Tax deduction at source is a tool used by the government of India to minimise the tax evasion cases in the country.
  • It helps in bringing economic equality to the country.
  • ·TDS is deducted during the whole financial year; it is one of the effective ways of generating revenue by the government.
  • Extended the base of tax collection: As per the study conducted by the FICCI in 2015, TDS has a major contribution in widening the base of tax collection and in improving the GDP ratio of the country.
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  1. Both Section 197 and 197A allows to avail of the facility of lower tax deduction of NIL tax deduction of TDS.
  2. When a citizen of India files a tax return and realises that he or she does not fall under the taxation slab or liable for less tax deduction, he or she can claim a refund into their respective bank account.
  3. Under Section 197 and 197A, if a taxpayer knows that his or her tax liability for the coming year is NIL or lower as compared to the employer is asking for the deduction, then he or she can apply for making a lower tax deduction by submitting the application to the respective Assessing offers as prescribed in form 13.
  4. In case taxpayers do not apply a lower rate of tax deduction, there is no need to be worried about he, or she can claim a refund in its annual return also.
  5. The Assessing officer issues the lower rate tax deduction certificate after taking into consideration the merits of the case.

Situation under which one is liable to get a Lower-rate tax deduction certificate

  • If your business is making losses
  • When the profit margin of the business is less as compared to the tax deduction rate
  • When the assessee carry forward the losses for setting off the coming year income
  • Assessee is eligible for a deduction of profits under Section 10 of Chapter VI A etc.
  • Assessee becomes eligible for the expenditure deductions
  • On a non-resident selling immovable property

Steps A deduct-or can take on Receipt Of Lower-rate deduction certificate:

  • Validate the PAN of the deductee who has submitted the certificate
  • The deduct-or makes sure that the certificate should be validated for the PAN, section, and TDS rate stated in the statement filed by the deductee.
  • The deduct-or checks that the certificate is valid for the present financial year or not.
  • Deduct-or checks that the threshold limit for the submitted lower rate interest certificate does not exceed the previous quarters.
  • The number of Lower interest certificates should be quoted correctly.
  • Show Flag ‘A’ in case the certificate is u/s 197 and show flag ’B’ in case the certificate is presented u/s 197A.

List Of TDS Certificates

According to Section 203, Income Tax Act, anyone who is liable to make the tax deductions at source is required to provide the certificate to the deductee also by specification tax amount, along with some particulars.

What is Form 13?

The application of getting a lower tax deduction certificate or nil TDS under Section 197 is to be made to the taxpayer by the Assessing Officer in a predetermined format, i.e., Form 13.

The information that is part of Form 13:

  • · Name of the person and its PAN details
  • · Reason for getting the refund
  • · Mentioning details like certificate number
  • Last three-year income proofs and income projected of the present year
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Form 15 G

As per the provision of Section 197 A of the Income Tax Act, 1961, if any of the individual or HUF has divided their income according to Section 2(22) or any of interest income under Section 57:

  • Not exceeding the following exemption limit
  • Tax liability should be nil.

Assessee is able to furnish a self-declaration in Form 15G to give a self-declaration that no tax is to be deducted at the source as their gross income does not fall under the taxation slab. This form is filled by those individuals who are below 60 years of age.

Form 15H

Self-Declaration form 15H is to be filled by that assessee who is above the age of 60 years whose annual income is not taxable to reduce the burden of paying TDS either on Fixed deposits, recurring deposits, EPF withdrawal, or interest income.


  1. The lower or NIL tax deduction certificate is applicable when the Income Tax officer provides that certificate as a response of Form 13 by a person who is liable to deduct TDS.
  2. This certificate is applicable in all the cases where payments are made either in the form of securities or interest earned from fixed deposits as per section 197 of the Income Tax Act.


Q. What if the deducted TDS is not reflecting in Form 26AS?

Ans. If the TDS is not reflected in Form 26AS, there may be several reasons like non-filing of TDS by the payer or details mentioned by the deductee are incorrect. To find out the exact reason, it is a must to contact the payer for the same.

Q. Without PAN, am I able to fill form 15G/ 15H to save TDS deduction?

Ans. According to Section 206AA, you are not allowed to fill Form 15G / 15H if a person being a citizen of India or NRI is not holding a PAN Card. For those who do not have a valid PAN card, in that case, the tax deduction will take place at a higher rate.

Q. What is the difference between PAN and TAN?

Ans. PAN is a permanent account number, and TAN is known as TAX deduction Account number. Having TAN is mandatory for all those persons who are liable to deduct tax. When the deductor deposits the tax which he or she deducted has to quote his TAN.

PAN cannot be used in place of TAN; for deductors, if he or she is deducting tax of his or her employee, the deductor has to present TAN.

Q. What was the last date of filing the Income Tax Return?

Ans. The due date for filing Income Tax Return for the financial year is 31st July earlier, but due to COVID 19 pandemic, the government of India decided to extend the date to 30th November for the convenience of taxpayers.