The Finance Bill, 2026 proposes to modernise the process for obtaining certificates for deduction of tax at source (TDS) or tax collection at source (TCS) at a lower or nil rate by enabling electronic filing and verification. Under the existing framework of section 395 of the Income-tax Act, 2025, applicants must approach the Assessing Officer for such certificates. The proposed amendment introduces an alternative mechanism allowing payees to submit applications electronically before a prescribed income-tax authority. Upon electronic verification, the authority may issue a certificate for lower or no deduction or reject the application if prescribed conditions are not met or the application is incomplete. Once issued, the payer must deduct tax in accordance with the certificate during its validity. The reform is aimed at reducing compliance burden, particularly for small taxpayers, improving efficiency, and promoting faceless and digital tax administration. The amendment will take effect from 1 April 2026 and apply from tax year 2026–27 onwards.
Enabling electronic verification and issuance of certificate for deduction of income-tax at lower rate or no deduction of income-tax
Section 395 of the Act pertains to issuance of certificates for deduction of tax at source (TDS) and tax collection at source (TCS) at nil or lower rate.
2. Sub-section (1) of the said section of the Act provides for issuance of certificate for deduction of tax at source at Nil or lower rates. As per the present provisions, the payee has to make an application before the Assessing Officer. Subsequent to the application, if the Assessing Officer is satisfied after due verification that the total income of the recipient justifies deduction of income-tax at any lower rates or no deduction of income-tax, he shall issue a certificate for lower or nil deduction of tax at source.
3. It is proposed to ease the compliance burden of small taxpayers by providing an option to the payee, to file the application for issuance of certificate for lower or nil deduction of income-tax electronically before the prescribed income-tax authority, which may issue the certificate subject to fulfilment of conditions as may be prescribed, or reject the application if prescribed conditions are not fulfilled or the application is incomplete.
4. The amendment will take effect from the 1st day of April, 2026.
[Clause 74]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 74 seeks to amend section 395 of the Income-tax Act, 2025 relating to certificates.
Sub-section (1) of the said section provides for issuance of certificate for tax deduction at source at Nil or lower rates.
It is proposed to insert a new sub-section (6) in the said section so as to provide that the application referred to in sub-section (1) of the said section may also be filed before the prescribed income-tax authority, subject to such conditions as may be provided by rules, and such authority on electronic verification of the contents of the application, may either issue a certificate for lower or no deduction or, as the case may be, reject such application for nonfulfillment of the prescribed conditions or on account of the application being incomplete.
This amendment will take effect from 1st April, 2026.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
74. Amendment of section 395.
In section 395 of the Act,—
(a) in sub-section (1), for clause (c), the following clause shall be substituted, namely:—
“(c) when a certificate is issued under clause (b) or sub-section (6), as the case may be, 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.”;
(b) after sub-section (5), the following sub-section shall be inserted, namely:—
“(6) The application referred to in sub-section (1)(a) may also be filed before the prescribed income-tax authority, subject to such conditions as may be prescribed, and such authority on electronic verification of the contents of the application, may—
(a) either issue a certificate for deduction of income-tax at lower rate or no deduction of income-tax; or
(b) reject such application on account of non-fulfillment of the prescribed conditions or on account of the application being incomplete.”.
