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Lower Tax Deduction Certificate

Lower Tax Deduction Certificate

Tax-deducted at source (‘TDS’) is a kind of advance tax that is required to be deposited to the Central Government by the deductor on behalf of the deductee or the taxpayer. The deductee or the taxpayer can claim the TDS so deducted in its return of income. The rate of TDS varies from 1% to 30% depending on the nature of payment such as salaries, professional fees, commission, etc. The taxpayer may claim the refund of TDS at the time of filing of return of income provided the TDS deducted is more than the final tax liability of such taxpayer. This deduction of TDS affects the cash flow of the deductee or the taxpayer, and therefore Income-tax Act, 1961 provides taxpayers the facility of lower tax deduction certificate u/s 197/197A. 

Alternatively, the taxpayers can opt for a lower or Nil TDS certificate where in his estimation his final tax liability will be either Nil or less than the TDS rate applicable to a particular source of income. The taxpayers include non-residents and foreign companies also who are operating in India through a permanent establishment. Due to the non-availability of the bank account in India, foreign companies generally opt for a lower or Nil TDS certificate.

A taxpayer generally opts for a lower or Nil TDS certificate in the following cases:

  • Loss-making or least profitable business;
  • Business having brought forward losses to set off with year’s income;
  • Business eligible for claiming production linked deduction;
  • Business eligible for a weighted deduction of expenditure.

For obtaining the lower or Nil TDS certificate, an application in the prescribed Form-13 is required to be filed with the jurisdictional Assessing Officer (‘AO’). The AO, based on the merits of the case, may issue a certificate if he is satisfied that the total income of the taxpayer justifies the deduction of the lower or Nil rate of TDS. The certificate issued u/s 197 by the AO is valid for the assessment year mentioned in the certificate unless it is canceled or the date mentioned in the certificate expires. 

Our team of professionals assists companies in obtaining lower or Nil TDS certificate u/s 197 from the AO. 

How ASC Helps?

  • Advisory in relation to eligibility for obtaining lower tax deduction certificate, based on the financial statements and return of income;
  • Assisting companies in computing the estimated tax liability for the relevant year;
  • Evaluation of the classification of income and the computation of final tax liability;
  • Preparing application in Form-13 along with annexures and filing of the same.
  • Follow up with the AO for their queries. 


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