The concept of a Lower Deduction Certificate (LDC) continues under the Income-tax Act, 2025 with no major policy change from the Income-tax Act, 1961. Under Section 395 of the new Act (corresponding to Section 197 of the old Act), a taxpayer can apply to the Assessing Officer for deduction of tax at a lower rate or for nil deduction where justified by the estimated total income. Upon satisfaction, the Assessing Officer issues a certificate specifying the applicable rate, which the payer must follow during its validity. The new Act simplifies presentation by covering all TDS provisions under Chapter XIX, unlike the earlier Act which listed specific sections. The application process remains online via the TRACES portal, and validity is restricted to the relevant financial year. Required documentation includes PAN, past ITRs, financial statements, income estimates, tax payment details, and transaction proofs, ensuring proper evaluation of eligibility for reduced withholding.
Analysis of Lower deduction Certificate under Income Tax Act
| Particulars | Income Tax Act 2025 | Income Tax Act 1961 |
| Section /Clause | 395 | 197 and Rule 28 |
| Applicability | Where tax is required to be deducted on any income or sum under this Chapter (CHAPTER XIX), then subject to the rules made under this Act,— (a) the payee may make an application before the Assessing Officer for deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be; and (b) the Assessing Officer on being satisfied that the total income of the payee justifies deduction of income-tax at a lower rate or no deduction of income tax, as the case may be, shall issue to him a certificate as appropriate; and (c) when a certificate is issued under clause (b), the person responsible for paying the income or sum shall deduct the tax at the rate specified in such certificate, or deduct no income-tax, as the case may be, till its validity. | the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. |
| Form | 128 | 13 |
| Benefit available on sections | Section covered under this Chapter (CHAPTER XIX), | under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195 |
| Process | Online through the TRACES portal | Online through the TRACES portal |
| Validity | Specified financial year | Specified financial year |
| Documents Required
|
PAN Card details.
Income Tax Returns (ITR) for the last three years. Estimated income statement Provisional computation of income Audited Financial Statement Comparative summary of gross / net profit ratios, returned / assessed income and tax liability from FY 2021-22 to FY 2025-26 (projected) Section wise gross receipts and tax effect thereon Details of previous LDC issued to the Company Proof of transaction (e.g., Sale deed, agreement). Tax payment challans |
Author Bio
