Sec. 197 How to apply for non/lower deduction certificate in Form 13

The provisions of Income- tax act impose an obligation on customer (i.e., recipient of service) to withhold certain portion of payment as tax deduction at source. Accordingly, the customer deducts such portion and releases the balance amount.

Assuming TDS rate is 10% and bill value is Rs. 50,000/-, service provider would get Rs. 45,000/- in the form of cash or cash equivalents and balance of Rs. 5,000/- would be available as tax credit which can be available for adjustment against taxes payable.

In case of least profitable businesses or loss making business, tax deductions at 10%(assumption) on revenue would cause real pinch on liquidity, though the same could be claimed as refund in subsequent year by filing Income tax return. Consequently, these business entities should at least wait for a period of 1 year to get their own money as refund from Income-tax department.

Hence, Income-tax act provides for a facility to obtain Nil Deduction Certificate or Lower Deduction Certificate by filing an application in Form 13 with Jurisdictional Assessing Officer (AO). Considering the merits of the case, AO issues a certificate seeking a list of customers of the assessee to neither deduct taxes nor deduct at lower rate.

Who can ideally apply for for non/lower deduction certificate in Form 13?

1. Loss making businesses

2. Least profitable business (profit margins being less than rate of tax deduction)

3. Assessee having carried forward losses to set off with future year’s Income

4. Assessee eligible for deductions of profits (U/s. 10 or under chapter VI A etc.,)

5. Assessee eligible for weighted deduction of expenditure

6. A non-resident selling immovable property

Above list is an indicatory list but changes on case to case basis.

Requirements to file application in Form 13

1. Financial statements of last 3 years and projected financial statements for FY 2018-19

2. Details of income of last 3 years and projected current year’s income of FY 2018-19

3. Income tax returns of last 3 years

4. Details of tax deduction of last 3 years (Form 26AS)

5. List of customers (with TAN) and projected income from customers

6. Details of tax deduction by assessee for last 3 years.

7. Registration/exemption Certificate in case of certain entities covered under section 11 or 12. It is mandatory, if declaration no. 1 is selected as a resident covered under Rule 28AB.

8. Registration/exemption Certificate in case of certain entities covered under section 139(4C) where income is exempt under section 10, If declaration no. 2 is selected as a resident covered under Rule 28AB.

9. Assessment Orders if assessed, for the last four assessment years.

Physical / Manual Filing of application in Form 13

Though there is a facility of online portal to file Form 13 application. There is also an option to file Form 13 physically/ manually.

Procedure to File online Form 13 for Lower/Non Deduction of TDS U/s. 197

Step 1: Login to TRACES website with your User ID, Password, PAN for the Taxpayer and the Verification Code. Landing page will be displayed on Screen.

Step 2: Go to ‘’Statements/Forms’’ tab and click on Request for Form 13 to initiate request. A Pop-Up window will be displayed (If DSC is not registered). Click on „Yes to proceed further.

Step 3: Select the residential status as Resident.

Step 4: Check list for Section 197/ 206C(9) will appear on the next screen. Click on Proceed button.

Step 5: Form No. (Form-13) will be auto-populated, select Financial Year and Request Type from drop down then click on Proceed button.

Step 6: Select option with (TAN & Amount) – Deductor TAN (s) & Amount both are available. A Pop up will be displayed on the screen to select the number of entries. Select on Less than or equal to 50 (Online) option to submit request through online.

Step 7: User need to fill details which needs to be furnished in Form -13, some of the details are auto-populated on the basis of TRACES profile. Also user need to select atleast any one declaration for exemption under section 10, section 11 or section 12 for certain entities covered under Income Tax Rule 28AB or not.

Step 8: Scenario 1: If user selects a declaration for exemption under section 10, section 11 or section 12 for certain entities covered under Income Tax Rule 28AB.( Either Declaration No. 1 or Declaration No. 2)

After filling up the basic details Annexure-I will open to fill the annexure details.

Step 9: Scenario 2: If user selects a declaration of Other than Rule 28AB of the Income Tax Rules 1962. (Declaration No. 3)

Select the type of annexure from dropdown and click on Proceed button. User has to select Annexure-I for No/Lower Deduction in case of Tax deduction at Source (TDS) or Annexure-III for Lower Collection in case of Tax Collection at Source (TCS).

Click on Template button to fill Computation of Estimated Income of Financial Year for which certificate is sought then submit. Details saved successfully message will appear on screen.

Step 9: After submitting declaration, click on Preview & Submit button to review the Form-13 details. Click on Submit  for final submission.

Step 10: After clicking on submit button, a pop-up will be displayed to validate the Form-13 request through DSC (Digital Signature Certificate) E- Verification (Through Internet Banking) or Mobile OTP or Aadhaar Number.

Click on Proceed after selecting available validating option. After validation, request for Form -13 will be submitted successfully. An e-mail and SMS will be sent for submission of Form -13.

User can check the status under Track Request Form-13 option available under Statements/Forms tab. User can cancel the requests till the status is Submitted  or  Clarification required by AO.

Should you require any clarification, feel free to contact me on 8884260807.

(Republished with Amendments)