tds certificate

According to the Income Tax Act provisions, Tax deducted at Sources (TDS) deduction is mandatory while making payments. Application for lower TDS deduction rates can be made from 28th February 2020.

The taxpayer who is making the payment, has to deduct the TDS and deposit it to the Income Tax Department before the assigned due date of depositing TDS.

At times TDS is deducted from the total revenue/ inpayer i.e receiver whereas the taypayer’s total tax liability is computed on the profit of that financial year.

It is in accordance with the prevailing Income Tax Rates/Rules, which may be less than the total amount of deducted TDS.

In such cases, TDS first gets deducted, and the taxpayer can claims the refund of excess amount of TDS deducted while filing Income Tax Return (ITR).

But the whole process turns out to be a hassle for many taxpayers because firstly TDS is deducted and later on the taxpayer asks for its refunds by filing ITR.ds

To reduce the hassle, Govt. has issued Section 197 which allows the taxpayers to avail of the Nil/Lower TDS deduction rate Certificate.

But often the process of getting the Certificate of Nil /Lower Deduction TDS for Lower TDS deduction rate takes much more time than expected.

To curb this problem, the Government is allowing the taxpayers to apply for Nil/Lower rate of TDS Deduction Certificate for the financial year 2020-21 from 28th February 2020. If you are looking for one, the article New reduced TDS Rate for Fy 2020-21 | Impact On The Tax Liability here will help you to get all the required information. Scroll through.

1. What is a Certificate of Nil/Lower Rate of TDS for Lower TDS deduction rate?

As we have already mentioned that it is mandatory to deduct TDS by the person who is making payment and deposit to the Government. The taxpayer can file return of income to claim the refund of excess amount of TDS deducted as compare to total tax liability.

Since the taxpayer may find this process cumbersome to get the refund. That’s why Govt. inserted Section 197 under which a taxpayer may file an application to the Income Tax Office for issuing a certificate for the Nil/Lower Rate of TDS Deduction.

When a taxpayer submits such a certificate granted under Section 197 to deductor/payer, the deductor/payer has to deduct TDS at the rate mentioned in the Nil/Lower Deduction Certificate.

However, the Nil/Lower deduction of TDS Certificate for Lower TDS deduction rate is applicable only when it is issued by an Income Tax Officer in response to the application Form 13 submitted by a taxpayer. Next, the taxpayer needs to provide the certificate to the person who’s deducting TDS.

This certificate is mandatory to be rendered in all cases except for the payment of Interest on Securities or Interest on FD as per Section 197A.

For these cases, the taxpayer needs to fill Form 15G or Form 15H.

2. Due date to apply for Certificate of Lower deduction of TDS

The Income Tax provision hasn’t set any deadline for applying under Section 197. Since TDS gets deducted depending on the income of the on-going financial year, we are advising you to apply for the certificate at the start of a financial year.

Even if you are a salaried person or have a contractor’s income- you may follow the same. However, here are a few points that you need to note.

  1. Application for Lower Tax Deduction Certificate takes time to get processed, to facilitate the taxpayer, the taxpayer can apply beforehand (on or after 28th February 2020) to see the effects from 1st April of Financial Year 2020-21.
  2. On the other hand, it takes time to obtain relevant data from different sources and process the request of Lower/Nil Tax Deduction Certificate. That’s why, request for issuing the certificate won’t be acceptable after 15th March of a Financial Year, i.e., no taxpayer can apply for the certificate after 15th March 2020 for the Financial Year 2019-20.
  3. All the above mentioned dates will be applicable for tax collection at source also.

3. Income Covered Under Section 197

Section 197 application can be made by the recipient of income in case of the following category of receipts where TDS is required to be made under the following Sections:

  1. Section 192 – Salary income
  2. Section 193 – Interest on securities
  3. Section 194 – Dividends
  4. Section 194A – Interest other than interest on securities
  5. Section 194C – Contractors income
  6. Section 194D – Insurance commission
  7. Section 194G – Commission/remuneration/prize on lottery tickets
  8. Section 194H – Commission or brokerage
  9. Section 194-I – Rent
  10. Section 194J – Fee for Professional or technical services
  11. Section 194LA – Compensation on acquisition of immovable property
  12. Section 194LBB – Income in respect of units of investment fund
  13. Section 194LBC – Income in respect of investment in securitization trust
  14. Section 195 – Income of nonresidents

4. Benefits for Certificate of Lower rate of deduction TDS

The taxpayers, who own the Certificate of Lower deduction of TDS issued by an Income Tax Department, will pay only the mentioned amount to the person who’s deducting the TDS. 

If the person’s total deducted amount is more than the tax liability, he/she doesn’t have to pay any amount as TDS.

5. EndNote

The Certificate of Lower deduction of TDS is valid only for the assessment year under Rule 28AA unless cancelled prior to the expiry date mentioned in the certificate.

Furthermore, the deductor should make a lower deduction of TDS only when his/her name is explicitly mentioned in the certificate, which is issued under Section 197 and as a response to the application Form 13.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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