(1) What is Section 197 of Income Tax Act, 1961?

Section 197 of the Income Tax Act, 1961 allows the taxpayer the facility of NIL or Lower tax rate deduction of TDS (or TDS exemption). In order to apply for this you need to submit Form 13 to the assessing officer. Also, this section strikes a delicate balance between the requirement of cash flow to the taxpayer and realizing the government dues at the earliest.

(2) Income Covered Under Section 197

Section 197 application can be made by the recipient of income in case of the following category of receipts where TDS is required to be made under the following Sections:

  • Section 192 – Salary income
  • Section 193 – Interest on securities
  • Section 194 – Dividends
  • Section 194A – Interest other than interest on securities
  • Section 194C – Contractors income
  • Section 194D – Insurance commission
  • Section 194G – Commission/remuneration/prize on lottery tickets
  • Section 194H – Commission or brokerage
  • Section 194-I – Rent
  • Section 194J – Fee for Professional or technical services
  • Section 194LA – Compensation on acquisition of immovable property
  • Section 194LBB – Income in respect of units of investment fund
  • Section 194LBC – Income in respect of investment in securitization trust
  • Section 194M – Contractors income, Commission, Fee for Professional or technical services
  • Section 195 – Income of non-residents

(3) Eligibility for Making an Application Under Section 197

Application can be made where income of any person attracts TDS as per above mentioned sections and income of the recipient justifies non-deduction or lower deduction of income tax based on his estimated final tax liability.

Section 197 Certificate For TDS Deduction at Lower Rate

(4) Timeline for Making the Application

Income-tax provision does not provide for a deadline to make an application under Section 197. However, as TDS is made on income of on-going financial year it is advisable to make an application at the beginning of financial year in case of regular income throughout the financial year and as and when the need arises in case of one-off incomes.

(5) Validity of an Application Made Under Section 197

Section 197 is issued for a particular financial year and stands valid from the date of issue and throughout the financial year unless cancelled by the assessing officer (TDS) before the expiry.

(6) Procedure for Making the Application Under Section 197

  • An application for nil/lower deduction of TDS using the FORM 13 is required to be filed with the Assessing Officer (TDS) for seeking permission. Such Form 13 can be filed either online or manually.
  • If the applicant satisfies the AO, he would process the issue of the certificate;
  • The copy of this certificate can be attached to the invoice given to the deductor, and he can use this to justify the lower tax deduction.

Extract of Section 197 of Income Tax Act, 1961

Section 197 Certificate For TDS Deduction at Lower Rate

197. (1) Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192193194194A194C,194D,194G194H194-I194J194K194LA194LBB194LBC  [, 194M]  [, 194-O] and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

Section 197(2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

(3) [***]

(Republished with amendments)

Read Also:-

SECTION TAXGURU LINKS
192 Section 192 TDS on Salary- Analysis
192A Section 192A | TDS on Payment of Accumulated balance due to an Employee
193 Section 193 TDS from Interest on Securities – Analysis
194 Section 194 TDS on payment of dividend
194A Section 194A TDS on Interest (other than Interest on Securities)
194B Section 194B TDS on winnings from Lottery, Game Shows & Puzzle etc
194BB Section 194BB TDS on Winning from Horse Races
194C Section 194C TDS on Payment to Contractor
194D Section 194D TDS on Insurance Commission- Analysis
194DA Section 194DA TDS on Payment in respect of Life Insurance Policy
194E Section 194E TDS on Payments to Non-Resident Sportsmen or Sports Association
194EE Section 194EE TDS on Payments in respect of Deposit under NSS
194F Section 194F TDS on Payments on account of repurchase of units by Mutual Fund or UTI
194G Section 194G TDS on Commission on Sale of Lottery Tickets- Analysis
194H Section 194H TDS on Commission & Brokerage- Analysis
194I Section 194I TDS on Rent – Analysis
194-IA Section 194IA TDS on Purchase of Immovable Property
194-IB Section 194IB TDS on Rent of Property
194-IC Section 194IC TDS on Payment Made Under Specified Agreement
194J Section 194J TDS on Professional or Technical Fees
194K Section 194K TDS on Income In Respect of Units of Mutual Fund
194-LA Section 194LA TDS on Payments of Compensation on Acquisition of certain Immovable Property
194-LB Section 194LB TDS on Income by way of Interest from Infrastructure Debt Fund 
194-LBA Section 194LBA TDS on Certain Income from Units of a Business Trust
194-LBB Section 194LBB TDS on Income in Respect of Units of Investment Fund
194-LBC Section 194LBC TDS on Income in Respect of Investment in Securitization Trust
194-LC Section 194LC | TDS on Interest Income from Indian Company or Business trust
194-LD Section 194LD TDS on Interest Income on certain Bonds/Government Securities
194M Section 194M TDS on payments of certain Sums by Individual & HUF
194N Section 194N TDS on cash withdrawal from banks/post offices
194O Section 194O TDS on E-commerce Operator- Analysis
194P Section 194P Deduction of tax in case of specified senior citizen
194Q Section 194Q Deduction of tax at source on payment of certain sum for purchase of goods
195 Section 195 TDS on Non-Resident Payments
195A Section 195A Income Payable ‘Net of Tax’
196B Section 196B TDS on long term capital gains from units referred to in section 115AB
196C Section 196C TDS on Income from foreign currency bonds or GDRs
196D Section 196D TDS on Income of foreign institutional investors from securities
197 Section 197 Certificate For TDS Deduction at Lower Rate
197A Section 197A – No TDS Deduction – Form 15G & Form 15H
198 Section 198 Tax Deducted at Source shall be deemed to be income received
200 (1) & (2) Section 200(1) & (2) Time Limit for Deposit of Tax Deducted at Source
200 (3) Section 200(3) Forms & Time Limit for Submitting Quarterly TDS Returns
203 Section 203 TDS Certificate
200A Section 200A Processing of Statements of Tax Deducted at Source
201 Section 201 Consequences of Non-Compliance to TDS
203A Section 203A Tax Deduction And Collection Account Number
206AA Section 206AA Mandatory Requirement of Furnishing PAN-TDS
206AB &
206CCA
Section 206AB & 206CCA Higher Rate of TDS/TCS in Case of Non-Filers of Return
206C Section 206C Tax Collection at Source (TCS)
206CC Section 206CC Mandatory Requirement of Furnishing PAN
40(a)(i) Disallowance for Non deduction of Tax at Source

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5 Comments

  1. Yamkhomang Haokip says:

    sir i belongs to ST and serving in the state of Manipur. I hve obtained income tax exemption u/s 197 of income tax act 1961 and sumit the same to my DDO. however they decline and insisted to submit income tax exemption certificate u/s 10(26) of income act. but income tax department denied that no such certificate issued by them. please guide me.

  2. Malathi Palla says:

    In case of salary, if an employee is obtained form 15AA which states a lower rate of tax to be deducted. Is this tax rate applied on total taxable income? Should we calculate cess too? what about surcharge?
    Can you please clarify.

    Regards,
    Malathi

  3. Niladri Bhattacharya says:

    NRI seller of property applied in Form 13 and got TDS deduction certificate u/s197 which says Buyer will deduct 11% . Property valued more that 1.50Cr . Buyer wants to deduct 13.16% . What’s the logic . Is he adding surcharge , Can he do it .What’s the section that explains this .

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