Lower & Nil Withholding Under Income Tax Act 2025: Section 395 Certificate & Section 393(6) Declaration

Summary: The Income-tax Act, 2025 retains the existing mechanisms for obtaining lower or nil tax deduction or collection and for self-declaration of nil tax liability, while introducing new section numbers and forms applicable from Tax Year 2026-27. Lower or nil TDS and TCS are now governed by Section 395 through Form No. 128, replacing the earlier Section 197, Section 206C(9), and Form 13. The certificate is issued by the Assessing Officer after examining the applicant’s estimated income and is available to all taxpayers, including companies, firms, LLPs, and non-residents. Self-declaration of nil tax liability is now governed by Section 393(6) through consolidated Form No. 121, replacing Forms 15G and 15H, and is available only to eligible resident individuals and certain non-company entities. Existing certificates issued under the earlier law remain valid for Tax Year 2026-27, while fresh Form No. 121 declarations are required. Both mechanisms only align withholding with estimated tax liability and do not reduce the actual tax payable.

Lower and Nil Withholding Under New Act: The Section 395 Certificate and the Section 393(6) Declaration

Withholding tax operates on gross amounts at prescribed rates, while actual liability is a net computation settled only in the return. For a large class of taxpayers the two figures diverge sharply, and the excess deducted sits with the department until a refund is processed — often the better part of a year. The Act addresses this through two mechanisms: a certificate from the Assessing Officer authorising deduction or collection at a lower or nil rate, and a self-declaration for cases where estimated total income carries no tax. Both continue under the Income-tax Act, 2025, but with new section numbers and new forms for Tax Year 2026-27. The substance is largely unchanged; the citations are not.

The references below have been checked against the Income Tax Department’s portal FAQ on the new forms and the CBDT reference note for Form 128. Given that this is a transition year, readers should still confirm the position against the notified Rules for their specific facts.

The certificate route: Section 395 and Form 128

Under the 1961 Act, lower or nil deduction of TDS was applied for under Section 197, and lower collection of TCS under Section 206C(9). The new Act consolidates both. Lower or nil TDS is now governed by Section 395(1) of the Income-tax Act, 2025, and lower TCS by Section 395(3). The application form, earlier Form 13, is now Form No. 128, prescribed under Rule 213 of the Income-tax Rules, 2026, which absorbs the erstwhile Rules 28, 28AA, 28AB, 29, 37G and 37H.

The operative position is the same as before. The payee applies, the Assessing Officer examines the estimated total income, and where the income justifies it, a certificate issues specifying the rate and the period for which it holds. Once issued, the deductor or collector is bound by it.

Who can apply. Any person — resident or non-resident, and including companies, firms and LLPs — may apply where income is subject to TDS or TCS. The covered receipts listed in the CBDT note include interest, commission, professional fees, contract payments and rent, along with other specified income. This is the only route available to a company or a firm; the self-declaration mechanism described below is not open to them. For entities whose gross professional or contractual receipts attract withholding well above their net taxable position, this is the applicable instrument.

Form 128 sorts applicants into four categories — a registered non-profit organisation, a specified entity under Section 263(9)(c), a person carrying on business or profession, and others — with annexures and declarations surfacing according to the category selected. There is a separate annexure for TCS (Annexure-III) and a distinct annexure for the case where the number of deductors is likely to exceed 100 and their details are not yet available. In that situation the certificate can issue in the applicant’s own name, authorising receipt of payments at the approved rate and generation of the appropriate certificate for each deductor — the “child certificate” mechanism.

Where and how to apply. The application is furnished electronically to the Director General of Income-tax (Systems) or an authorised person, and processed through the TRACES portal: login, then the file-forms path to Form No. 128, complete the online form, upload supporting documents, e-verify and submit. On approval the certificate is available for download and for sharing with the payer, and its details are surfaced to the deductor through the system so the correct rate flows into their TDS/TCS statements.

Documentation. PAN of the applicant; the payer’s TAN for the TDS and TCS annexures; an estimated income and tax computation for the period; the last four years’ ITRs, audit reports and financial statements where required (note the shift from the earlier three-year practice); and details of advance tax paid and TDS/TCS credits already available.

On timing: Form 128 may be filed at any time during the Tax Year, but a certificate cannot reverse tax already deducted. Where a large invoice or a property transaction is expected, the certificate must reach the deductor before payment is made. A certificate obtained after deduction protects nothing already deducted.

A second effect of the Section 395(1) certificate is relevant to foreign remittances. Form 15CA and Form 15CB have been renumbered to Form No. 145 and Form No. 146 under Section 397(3)(d). Where the remitter holds an Assessing Officer’s certificate under Section 395(1) and files the corresponding part of Form 145, the Chartered Accountant’s certificate in Form 146 is not required. The certificate that reduces withholding therefore also removes a compliance step in the remittance chain.

The self-declaration route: Section 393(6) and Form 121

The second mechanism requires no officer and no certificate. It is a self-declaration made directly to the payer — bank, AMC, insurer, or provident fund — that tax on the declarant’s estimated total income for the year will be nil.

Under the 1961 Act this was Section 197A, with taxpayers filing Form 15G or Form 15H by age. Under the new Act the provision is Section 393(6), and the two forms are consolidated into a single Form No. 121 under the Income-tax Rules, 2026. Practitioners will see this described as Rule 211; the exact rule should be confirmed against the notified text for a formal filing.

Eligibility. Unchanged; only the form has changed. A resident individual below sixty, and other eligible persons excluding companies and firms, may declare on the former Form 15G footing; a resident individual aged sixty or more, on the former Form 15H footing. The condition remains that tax on the estimated total income for the tax year must be nil — not merely that a refund would eventually arise. A rebate under Section 87A that reduces final tax to zero does not, by itself, make a sub-sixty declarant eligible if total income still exceeds the basic exemption limit. The declaration is a certification of nil tax on estimated total income and should be treated accordingly.

The administrative change is the improvement. Under the old system a separate Unique Identification Number was generated by every payer for every declaration, even for the same PAN in the same year. Under the new framework a single UIN is allotted per PAN for a given tax year, and every declaration made to different payers links to that one number, with a facility for payers to fetch it from the portal. Merging 15G and 15H into one form also removes the recurring question of which of the two applied.

Transition points- Section 197 Certificates Continue; Fresh Form 121 Declaration Required

A lower or nil certificate issued under the old Section 197 remains valid for payments and credits made on or after 1 April 2026, provided it was issued in respect of projected receivables for Tax Year 2026-27. Existing certificates need not be redone mid-year on account of the change in the Act.

Declarations are different. A Form 15G or 15H filed for FY 2025-26 holds only for that year. For Tax Year 2026-27 the declaration must be made afresh in Form No. 121, submitted to each payer, and it does not carry forward automatically.

Comparison of Form 128 (Section 395) and Form 121 (Section 393(6))

Lower/Nil Withholding Improves Cash Flow, Not Tax Liability

Neither instrument reduces the tax payable. The liability computed in the return is identical whether or not a certificate or declaration is in place. What changes is timing and liquidity. Without them, over-deducted tax is recovered only through the refund route, months later; with them, withholding is aligned with the real figure and the funds remain available in the interim. For an entity operating on working capital, that timing difference is material to how the next period is funded. The practical implication is to treat these applications as a scheduled item and to file early, before the deduction occurs.

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Disclaimer: This article is intended for general information and educational purposes only and reflects the position under the Income-tax Act, 2025 and the Income-tax Rules, 2026 as understood at the time of writing, cross-checked against the Income Tax Department’s published FAQ and forms. It does not constitute professional advice or an opinion on any specific matter. Statutory provisions, rules and forms are subject to amendment and administrative clarification. Readers should verify the current position and consult a qualified professional before acting on any part of this article. The author and the firm accept no liability for any action taken in reliance on this content.