Section 197 Certificate For TDS Deduction at Lower Rate

(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.

(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 192, 193, 194, 194A, 194C,194D,194G, 194H, 194-I, 194J, 194K, 194LA, 194LBB, 194LBC  [, 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.

(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)

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