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Lower TDS application under section 197

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    Lower witholding Tax Application under section 197

    The CBDT, to relieve the burden on NRI income tax assesses, issued an order on 31 March 2020 relaxing the requirements for applying for certificate u/s 197 for applying lower rate or no TDS or TCS for the FY 2020-21. Section 197 provides the format for an application to be made by the assesses for a lower or zero rate of TDS.

    Application for section 197 for reduction of TDS rate for Non-Resident Individuals. It also nudges the taxpayers to stop using tax evasion measures. The TDS and TCS rates are provided in section 195 for non-residents taxpayers. The person making the payments for services or goods received from an NRI assesses with deducting and deposit the income tax at specified rates and only pay the balance amount. This enhances tax compliance, advanced tax collections increase, and helps track the income of the recipients in the future. Here we talking about the Lower TDS application under section 197.


    There may be cases where a taxpayer assumes s/he will not have a taxable income due to:

    • The was a loss eligible for carrying forward
    • Eligibility to claim some exemptions or deductions.

    If the TDS and TCS are deducted at the usual rates, you can still get the refunds and interest on it. But the funds of the taxpayer may get unnecessarily blocked for a long period.

    To ease the burden of such assesses, an application u/s 197 can be file to obtain a certificate from the AO allowing the payer to deduct the tax at either a lower rate or a NIL rate.


    Deadline Extension:

    The validity date for the said certificates, for lower or NIL rates on TDS u/s 197, was extended till 30 June 2020, for FY 2019-20. It is consistent with the CBDT approach to introduce extensions and modifications to the application process, to help everyone come over the hardships from COVID-19 disruptions.

    The taxpayer must have applied for the certificate u/s 197, through the TRACES portal, for FY 2020-21, and it must be still pending. In such cases, the FY 2019-20 certificate will be valid for use in the FY 2020-21 till 30 June 2020.


    Income-heads Covered:

    The applicant can apply to receive lower rates or NIL rate certificate if s/he earns from one salary, interest income, dividends,  contactor income, insurance income, commission income, prize money, brokerage, rental income, professional fee, compensation for acquisition of immovable property, income from mutual funds, income from securitization trust, and income of NRI assesses.


    Application Timeline:

    To get the benefit of the lower or zero TDS in the ongoing financial year, it is advisable to obtain and keep the certificate ready, at the beginning of the FY. In general, there is no timeline or last date to apply for and obtain u/s 197.

    Modified Process:

    • Applications u/s 197 must be sent convener the email, AO must check it;
    • Completed Form 13, with Annexure I or III as needed;
    • Details required for uploading while completing Form 13;
    • Projected balance sheet and profit and loss account for FY 2020-21;


    The certificates issued by email will contain the following information:

    • Serial Number;
    • TAN of the deductor;
    • PAN of the deductee;
    • Financial year;
    • Section under which TDS or TCS needs to be reduced
    • The estimated amount of income to be received or paid;

    Validity: The certificate issued u/s 197 is valid only during that FY and is valid from the date of issue till the end of the FY concerned. Existing certificates u/s 197 of the IT Act for FY 2019-20 have been declared legal until June 30, 2020. The timely clarification by the CBDT and extension of existing lower or nil TDS/TCS certificates provides a welcome relief to taxpayers in the situation caused by COVID-19 and the consequent lockdown.