Introduction: Section 197 of the Income Tax Act provides a mechanism for taxpayers to apply for certificates allowing for deduction at a lower rate or nil deduction of tax at source (TDS). This provision offers relief to entities facing specific financial circumstances, enabling them to manage their tax liabilities more efficiently.
Section – 197 – Certificate for deduction at lower rate
I. Eligibility
The application to obtain the Nil or Lower TDS certificate can be filed by any person. Some cases where application is made before AO are:
a) Loss-making businesses
b) Least profitable business (profit margins being less than the rate of tax deduction)
c) Assessee having carried forward losses to set off with future year’s Income.
A taxpayer has to apply with the Assessing Officer in Form 13 seeking permission.
II. Timeline for application
For regular income it is advisable to make an application at the beginning of financial year and as and when the need arises in case of one-off incomes.
III. Form 13
Information to be furnished:
a) Name and PAN
b) Purpose of the refund being received.
c) Ensure the specification of the certificate number in the statement.
d) Income details of last three years and projected income of the current year
e) Tax paid in the last three years and also tax paid/deducted in the current year.
IV. Approval by AO
Before approval the AO has to determine the existing and estimated tax liability and after considering tax payable on the estimated income of the ongoing financial year, tax payable on the assessed or returned or estimated income, of the previous four financial years, existing liability under the Income-tax Act, 1961.
The assessing officer has to also consider the advance tax payment, TDS and TCS for the ongoing financial year till the date of making of the application.
AO has to dispose of the applications within a time frame of 30 days.
V. Attach Certificate
Copy of this certificate should be attached to the invoice raised to the deductor to justify lower tax deduction.
VI. Validity under Section 197
Certificate issued is only valid for the assessment year mentioned in the certificate unless it is cancelled, or the date mentioned on the certificate expires.
Conclusion: Section 197 empowers taxpayers to seek relief from higher TDS rates by obtaining certificates for deduction at lower rates. Through a structured application process and approval by the Assessing Officer, entities can mitigate tax burdens aligned with their financial realities. This mechanism underscores the Income Tax Act’s flexibility in accommodating diverse taxpayer needs while ensuring adherence to regulatory frameworks.
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