Income Tax

All you need to know about Sections 197 And 197A of the Income Tax Act

Sections 197 and 197A of the Income Tax Act talk about the lesser rate of TDS or NIL TDS. According to these sections, the individual can apply for an exemption of TDS deduction on his or her income if his or her salary or income is lower than the specified taxation limit. One thing to be noted is that both Sections 197 and 197A of the Income Tax Act only apply to individuals, not to any firm or company. These sections shall be discussed in detail in the present article.

The Concept of TDS

TDS, also known as Tax deducted at source, is a type of tax which is deducted in a certain amount or percentage from the income as a tax before paying it to the payee. Entities, companies and organisations who pay salaries, commissions and interests are liable to deduce TDS. This percentage of the deduction is known as TDS or tax deducted at source.

Purpose and Features of TDS

The primary motive or purpose behind introducing the concept of tax deducted at source by the income tax department is to curb the malpractice of tax evasion. TDS has helped a lot to a greater extent in curbing tax evasion as it is a kind of advanced tax that is paid to the government. TDS in India usually ranges from 1 to 30 per cent from all income sources in a financial year. It is usually filed in Form 26AS. 

In developed countries like the USA and Canada, TDS or tax deducted as the source is deducted as high as 80 per cent. 

There are many features of TDS. Some of them are given below:-

• The time period for the payment of TDS is specified by the respected tax authorities.
• The person or an organisation or entity that is paying the income to the payee is responsible for deducing TDS or collecting tax at source.
• The deductors who are responsible for the deduction of TDS are mandatorily required to file quarterly statements of TDS returns.
• It is up to the tax authorities to specify the conditions related to the collection of TDS from individuals.

Provisions Related to Sections 197 and 197A of the Income Tax Act

The provisions related to Sections 197 and 197A of the Income Tax Act are discussed below –

Sections 197 and 197A of the Income Tax Act give specific power to individuals to specify NIL or lower tax rate deductions on their incomes under specified conditions. These sections give the benefit to the payee that he can claim lower TDS on his income if he feels that his tax liability is lower than what he has paid. In this condition, he can claim a TDS exemption on his income. The taxpayer or an individual who is claiming low TDS on his income needs to submit the application for such to the Assessing Officer or AO in the prescribed Form 13 under Sections 197 and 197A of the Income Tax Act^[1]. In case the taxpayer or an individual forgets to submit the application, he or she can still claim TDS return on his annual income.

Form 13 and Pre-Requisites Documents are to be submitted along with it

The application for claiming a lower or NIL TDA is to be submitted in a properly pre-defined format known as Form 13. This form after the filling is submitted to the jurisdictional AO or assessing officer. The application should be disposed of within thirty (30 days) from the date when the application is received.

Before reviewing the application, the assessing officer will ask certain questions or may ask for further documents. It is upon the AO to reject or approve the application. Once the application is approved, the certificate for claiming lower or NIL TDS will be issued by the assessing officer.

Required documents need to be submitted with Form 13. These are given below:-

• Copies of return of income from the past three financial years along with the enclosures and acknowledgement.
• Copies of financial statements along with audit reports from the past three financial years. These documents are necessary when the taxpayer owns any form of business.
• Profit and loss statement for the current financial year.
• Copy of PAN Card, TDS default details and E-TDS acknowledgement for the last two financial years.
• Income during that financial year and other documents related to the income, such as pay slips etc

If an individual is seeking a certificate of the deduction of tax or TDS at a lower or NIL rate, he or she will submit his/her application electronically under Form 13. However, if the individual or taxpayer is seeking a non-deduction of TDS from certain specific types of incomes such as interest on securities and fixed deposits, withdrawals, insurance commission, corporate bonds, post office deposits EPF (Employee Provident Fund), he or she is required to fill the Form 15G or Form15H as provisions specified under the Section 197A of the Income Tax Act.

Individuals under the age of 60 can submit a declaration under Form 15G as specified in Section 197A of the Income Tax Act, and individuals above the age of 60 can submit a declaration under Form 15H.

Who is Eligible to Claim TDS Deduction under Sections 197 and 197A of the Income Tax Act?

One important is to be noted down that facilities and benefits given under Sections 197 and 197A of the Income Tax Act can only be availed by an individual. These sections don’t apply to companies, entities and organisations.

Following individuals and taxpayers can claim the benefit of Sections 197 and 197A of the income tax act on their deductible income if their income is below the taxable limits specified under these sections. These are mentioned below:-

• Any Individual not being the company or a firm or a Hindu Undivided Family (HUF).
•  Contractors
• The person who is liable to pay rent can claim the benefit of the TDS deduction under the aforementioned sections.
• Individuals who avail professional and technical services.
• Resident Individuals

Conclusion

In a nutshell, it can be briefed that an individual can claim the TDS deduction under sections 197 and 197A of the Income Tax Act, following that he or she fulfils the conditions mentioned in these sections. For availing of this benefit, the individual needs to get the certificate to claim lower TDS, which can be received after the filing of the application in Form 13 to the assessing officer.

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