Where a taxpayer believes that its total income justifies withholding of tax at a lower rate, it can apply to the assessing officer for a  certificate of withholding tax at a lower rate. The application by the taxpayer to the AO for a certificate of withholding tax at a lower rate is governed by Rule 28AA of the Income-tax Rules, 1962 (the Rules).

Recently, the Central Board of Direct Taxes (“CBDT”) has vide Notification No. 16 / 2011 dated 29 March, 2011 substituted Rule 28AA of the Rules, which requires the applicant to furnish additional details at the time of applying for a certificate for a lower / nil rate of withholding tax. The modifications are effective from 1 April, 2011.

The modifications made

Current Provisions Amended Provisions Impact / Change
Rule 28AA
The AO can issue a certificate for nil withholding of tax, or for tax at a lower rate. The rate of tax withholding was to be determined as follows:(i)        at the average rate of tax, i.e the total tax payable on estimated income, less the sum of advance tax already paid and taxes already withheld, as a percentage of the total paymentor(ii)      at the average of the average rates of tax  paid by the assessee in the last three years;whichever is higher.
  • If the AO is satisfied that the existing and the estimated tax liability of a person justifies tax withholding at a lower rate, or at nil rate, the AO will issue a certificate.
  • The AO will determine the existing and the estimated liability after considering the following: – tax payable on estimated income of the previous year relevant to the assessment year;

–           tax payable on the assessed or the returned income of the three previous years;

– existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957;

– advance tax payment and taxes withheld for the assessment year;

– withholding tax up to the date of application relevant to the date of application year; and

– tax collected at source relevant to the year until the date of application.

  • The requirement of a minimum rate of withholding at the average of the rate of taxes paid in the last three years has been done away with. However, the AO is required to consider this in determining the estimated liability for the purpose of lower rate of withholding or for nil withholding.
  • Form 13, relating to the application, has been modified. In the new form 13, the following additional details are required to be furnished: – Tax Deduction and Collection Account No. (“TAN”)

– Details of returns/statements which have become due but are not filed

– Details of returned income/ assessed income for the last three assessment years

–     Details of sales, profit, etc. for the three
previous years in the case of an assessee whose income includes income under the heading “Profits and gains of business or profession”: (copies of profit and loss account and balance sheet along with the audit report, if audited, for the three previous years must be enclosed).

–    Details of existing liability under Income-tax
Act, 1961 and Wealth-tax Act, 1957.

– Assessment year to which the payments relate.

This will make the process of application and certificate issuance more comprehensive at the initial stage.

  • Rule 31A
Quarterly statement of tax withholding is required to be furnished by the person responsible for withholding tax.
  • In addition to the existing requirements, the
    particulars of amounts paid or credited on which tax was not withheld is also required to be furnished.
  • The details of the payment made to  the contractors of specified business under section 194C(6) of the Act (i.e. plying, hiring or leasing goods carriages) without withholding tax on furnishing of PAN2 is now required to be included in the quarterly statement.

This is an additional compliance requirement for the person responsible for withholding tax. This will also lead to the possibility of scrutinising of the transactions at the filing stage of the process.

Conclusion – The amended requirements further standardises the process by seeking specific details which make the process of application and certificate issuance more comprehensive. The additional information that is called for by the modified Rule 31A was already being provided by the assessee while furnishing the quarterly statement.

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  1. Santosh Finlease Pvt Ltd says:

    We have to file form 13 for the lower rate of Deduction of Tax as the Company is working in Delhi as Commpany has to file in Income Tax Aplication in Delhi or weather Company has to file it with Bengaluru.

  2. R Siva says:

    Applicability of dates for Lower deduction of TDS
    Suppose if the LD TDS Certificate is issued in the middle of the year say on Aug’2014 and prior to Aug’14 (between April to July14) there were some transactions on which TDS is deducted at Normal rates.
    Let us assume that For the first 4 months total taxable transaction is worth 80000 and TDS is deducted at normal rate of 10%
    In Aug14 LD TDS certificate is furnished as Up to 100000 TDS @ 2% and beyond 100000 it will be at normal rate.
    In Aug14 there is a transaction of 20k and TDS will be deducted at 2%
    In Sep14 if there is a transaction for 10k what should be the % that should be considered 2% or 10% (since transaction till Aug has reached 100000 limit)

    Please advice


    I want to know how to get lower deduction of TDS-Certoficate(0.01%). 
    And What is the Necessary  Requirement to get this certificate.

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