As per the provisions of the Income Tax Act, TDS/TCS is required to be deducted at the time of making any payment. This TDS is deducted by the person making the payment and is required to be deposited with the Income Tax Deptt before the due date of depositing TDS.
- Recommended Read: TDS Rate Chart
In some circumstances, a case may arise that TDS is being deducted from the income of the receiver, but his total tax liability computed at the end of the year as per the Income Tax Slab Rates is less than the TDS deducted.
- Recommended Read: Income Tax Slab Rate
In such cases, TDS is first deducted and then the taxpayer claims refund of TDS at the time of filing his income tax return. In many cases, this takes time and is burdensome for the taxpayer as first his TDS is being deducted by the person making the payment, then such TDS is deposited with the govt, and then a refund of TDS is being claimed.
To reduce the hardships faced by the taxpayers, the govt has inserted Section 197 which states that in case the total tax liability at the end of the person whose TDS is being deducted is less than the amount of TDS that is being deducted, he may file an application to the Income Tax Officer to give him a certificate for Nil/ Lower deduction of TDS.
Once such a certificate is granted under Section 197, the TDS will be deducted as per the TDS Rate stated in the Certificate.
An application for Nil/ Lower deduction of TDS is required to be filed in Form 13 to the Income Tax Officer, and the tax officer on being satisfied that lower deduction of TDS is justified shall issue a certificate for the same under Section 197.
Nil/ Lower deduction of TDS is only applicable once the Income tax officer has issued a certificate for the same in response to an application made in Form 13. This certificate is required to be submitted to the person who is deducting the TDS. This certificate is required in all cases except where payment is being made as Interest on Securities or Interest on Fixed Deposits under Section 197A. In such cases, Form 15G/ Form 15H is required to be submitted.
- Recommended Read: Form 15G/15H for Lower Deduction of TDS on Interest
Procedure for filing Form 13 to Income Tax Officer
An application for nil/ lower deduction of TDS under Section 197 is required to be made by the taxpayer to the income tax officer in Form 13. Various details are required to be furnished by the taxpayer in this Form 13, some of which include:-
- Name and PAN No.
- Details regarding the purpose for which the payment is being received
- Details of income of the last 3 years and the projected current year’s income
- Details of payment of tax of the last 3 years
- Details of tax deducted/ paid for the current year
A copy of Form 13 has been attached herewith for your ready reference
As per Section 28AA, the certificate so issued by the income tax officer under Section 197 is valid only for the assessment year mentioned in the certificate unless cancelled before the expiry of the date mentioned in the certificate.
Moreover, this is not a blanket certificate and the deductor shall make a lower deduction of TDS only if his name is specifically mentioned in the Certificate which is to be issued on an application made to the Income Tax Officer in Form 13.