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Income Tax Taxation

TDS Exemption Certificate

TDS Exemption Certificate

TDS stands for Tax Deducted at Source. The person making payment to other person is required to deduct TDS and deposit the same to the Government of India as per applicable provision on Income Tax Act, 1961 and read with Rules, 1962.

Income tax act of India instructs to deduct TDS at the time of credit or payment whichever is earlier. This provision is to secure the collection of tax and subject to scrutiny the same is allowed for the deduction of the tax liability of any taxpayer.

Section 197 of Income Tax Act, states the provision of a lower rate of TDS or no TDS on credit or payment as the case may be if Assessing Officer is satisfied to do so subject to evidence production for doing so by the applicant. Basically, TDS Exemption Certificate is not suo moto rather the assessed need to apply for the same to concerned Assessing Officer. Therefore the burden of justification on which such certificate to be issued needs to be provided by the applicant itself to take an informed decision by Assessing Officer.

Who can apply the TDS Exemption Certificate?

Any access whose income is derived from section covered by 197 and those derived income are below the minimum amount chargeable to tax or specifically exempt or person is not liable to pay tax as per the existing tax law then the person is eligible to apply for TDS exemption Certificate u/s 197.

Section covered under the provision of Section 197

Section 197 has covered the following particular section to issuance TDS Exemption Certificate:-

  1. Section 192: Salary
  2. Section 193: Interest on Securities
  3. Section 194: Dividends
  4. Section 194A: Interest other than “Interest on Securities”
  5. Section 194C: Payment to Contractors
  6. Section 194D: Insurance Commission
  7. Section 194G: Commission etc. on the sale of lottery tickets
  8. Section 194H: Commission or Brokerage
  9. Section 194-I: Rent
  10. Section 194J: Fees for professional or technical services
  11. Section 194K: Income in respect of Units [Omitted by the Finance Act, 2016 w.e.f. 1st June 2016]
  12. Section 194LA: Payment of compensation on acquisition of certain immovable property
  13. Section 194LBB: Income in respect of Units of Investment Fund
  14. Section 194LBC: Income in respect of investment in the securitization trust
  15. Section 195: Other Sums

It means any person having income from the above-listed section from point (a) to (o) and the income is specifically exempt, income is below minimum amount chargeable to tax or person is not liable to pay tax on such income then person can file application to its concern Assessing Officer to allow him Nil or Low rate of Tax rate to deducted. Meaning thereby the person getting such certificate can attach to every invoice send to its client and the TDS Penalty will not be deducted.

It is pertinent to note it down that the payment other than above section is not supposed to apply for TDS Exemption Certificate under the provision of Section 197.

Also, Read: Tax on Distributed Profit of Domestic Companies.

How to obtain the TDS Exemption Certificate?

A person eligible to obtain a certificate under the provision of income tax law in India can file an application in Form No. 13 u/r 28 of Income Tax Rules, 1962. Assessing Officer required to provide decision either allowing or rejecting the application for Nil or Low rate of TDS applicable to the applicant within 30 days from the date of receiving the application.

Certificate of no deduction of tax or low rate of tax shall be valid only with regard to the person responsible for deducting tax and named therein.

Application to be filed with concerned Assessing Officer only. The period of applicability will be either mentioned in a certificate or till the cancellation from a concerned assessing officer is issued.

The application is merely a letter to assessing officer requesting the matter and providing the details of concern like:-

  1. Status & Residential status
  2. Permanent Account Number (PAN) & Tax Collection and Collection Number (TAN)
  3. Details of return/statements u/s 139 (Income Tax Return), Section 200 (TDS Return) and 206C (TCS Return) which have become due but have not been filed
  4. Detail of returned Income/ assessed income for the last three assessment years
  5. Details of Tax payment for the last three assessment year
  6. Copy of Balance Sheet, Statement of Profit & Loss Account (SPL) and Audit report of the last three previous year
  7. Details of existing liability under the Income Tax Act, 1961
  8. Assessment year to which payment relates
  9. Estimated total income of previous year relevant to assessment year refereed in (8)
  10. Total tax including interest payable on the income at (9)
  11. How the liability mentioned in (8) & (9) is proposed to be discharged
  12. Details of payment of advance tax and tax already deducted/collected for the assessment year relevant to the current previous year till date i.e. Advance Tax, TDS & TCS
  13. Details of income claimed to be exempt and not included in total income in (9). [Annexed reason of it as a note to it.]

After disclosing all this information with relevant evidence or supporting documents to substantiate the information true and correct, the applicant is required to mention date, place and affix the signature of applicant itself on Form 13.

Also, Read: How to Claim HRA – House Rent Allowances.

On concluding remark it can be summarized that the application seems to be easy but the actual receiving of certificate after substantiating all facts and figure with evidentiary documents still the deciding factor is lying with Assessing Officer. Therefore the person thinking of applying this certificate, wish him a best of luck for availing this provision under the Income Tax Act, 1961.

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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