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 ?
Above list is an indicatory list but changes on case to case basis.
Requirements to file application in Form 13
Physical / Manual Filing of application in Form 13
Procedure to File online Form 13 for Lower / Non Deduction of TDS U/s. 197
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