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TDS Lower Deduction Certificate (Section 197) – Process, Time Limit, and FAQs (2025)

Introduction

Tax Deducted at Source (TDS) is a mechanism where tax is deducted at the time of making payments. However, in some cases, the deducted amount may be higher than the actual tax liability of the payee. To prevent unnecessary cash outflow and refunds, the Income Tax Act provides a facility under Section 197 for obtaining a Lower or Nil Deduction Certificate. This certificate allows the deductor to deduct TDS at a reduced rate or not deduct it at all.

This article explains the process, eligibility, and time limits for applying for a TDS Lower Deduction Certificate, along with answers to frequently asked questions (FAQs).

What is a TDS Lower Deduction Certificate?

A TDS Lower Deduction Certificate is a certificate issued by the Income Tax Department under Section 197 of the Income Tax Act, 1961, allowing a taxpayer to receive payments with TDS deducted at a lower rate or at a nil rate. This is beneficial for individuals or entities whose total tax liability is lower than the standard TDS rates.

Who Can Apply for a Lower TDS Deduction Certificate?

The following taxpayers can apply for a Lower or Nil TDS Deduction Certificate:

  1. Individuals, Firms, and Companies whose estimated total income is lower than the applicable TDS rate.
  2. Non-Residents receiving payments from India (if eligible under DTAA provisions).
  3. Freelancers and consultants who provide professional services and expect a lower taxable income.
  4. Companies with business losses or exemptions.

Time Limit for Applying for a Lower TDS Deduction Certificate

When Should You Apply?

  • There is no strict deadline mentioned in the Income Tax Act.
  • However, it is advisable to apply before the first transaction in the financial year to avoid excess TDS deduction.
  • Applications are accepted from April 1 of the financial year.
  • Since the approval process takes 4-6 weeks, early application is recommended.

Validity of the Certificate

  • The certificate is valid only for the financial year in which it is issued.
  • A fresh application must be submitted every year if required.

How to Apply for a Lower TDS Deduction Certificate (Form 13)?

Step-by-Step Process

  1. Login to TRACES Portal (https://www.tdscpc.gov.in)
  2. Navigate to “Application for Lower/Nil Deduction of TDS (Form 13)”
  3. Fill in the Required Details:
    • PAN details
    • Nature of income and expected receipts
    • Justification for lower deduction
    • Last three years’ tax returns and financial statements
    • Tax computation and advance tax details
  4. Upload Supporting Documents:
    • Financial statements
    • Tax audit reports (if applicable)
    • Business turnover details
  5. Submit the Application and note down the acknowledgement number.
  6. Track the Application Status on TRACES.
  7. Upon Approval, Share the Certificate with the Deductor so they can apply the lower TDS rate.

FAQs on TDS Lower Deduction Certificate (Section 197)

1. Who can apply for a lower TDS deduction certificate?

Any taxpayer who expects their actual tax liability to be lower than the normal TDS rate can apply. This includes businesses, professionals, consultants, and foreign entities receiving income from India.

2. What is the time limit to apply for a TDS lower deduction certificate?

There is no fixed deadline, but it should be applied for before the first transaction of the financial year to avoid excess TDS deductions. Ideally, apply in April or May.

3. How long does it take to get approval for a lower TDS deduction certificate?

The processing time is usually 4-6 weeks, but it can take longer in case of additional scrutiny by the assessing officer.

4. What happens if I do not apply for a lower TDS certificate on time?

If you do not apply on time, TDS will be deducted at the normal rate. You can claim a refund while filing your Income Tax Return (ITR), but it may cause cash flow issues.

5. Is the lower TDS deduction certificate applicable to all payments?

No, it applies only to specified payments and payers as mentioned in the certificate.

6. Can a non-resident apply for a lower TDS deduction certificate?

Yes, non-residents receiving income from India can apply under Section 197, especially if they qualify for benefits under a Double Taxation Avoidance Agreement (DTAA).

7. What documents are required to apply for a lower TDS certificate?

Key documents include:

  • Past three years’ income tax returns
  • Financial statements (profit & loss account, balance sheet)
  • Tax computation statements
  • Justification for lower deduction

8. How can I track my lower TDS application status?

The status can be tracked on the TRACES portal under the “Application Status” section.

9. Can a lower TDS deduction certificate be rejected?

Yes, if the Assessing Officer (AO) is not satisfied with the justification provided, the application may be rejected. The applicant can appeal or reapply with additional documents.

10. Is the lower TDS certificate valid for multiple deductors?

Yes, the certificate may specify multiple deductors, or you may need to apply for separate certificates for different payers.

Conclusion

A TDS Lower Deduction Certificate is a useful tool for businesses and professionals to manage cash flow by reducing excessive TDS deductions. Since processing takes time, it is advisable to apply well before the first payment is received in the financial year.

By following the process and providing accurate documentation, applicants can avoid unnecessary TDS deductions and streamline their financial planning.

Would you like assistance in preparing the required documents for a TDS Lower Deduction Certificate application? Let us know in the comments!

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