Income Tax Taxation

TDS Exemption Certificate

Introduction

Tax Deducted at Source, or TDS refers to the responsibility of withholding tax from payments made by one person to another. In accordance with the pertinent rules detailed in the Income Tax Act of 1961 and its supporting Rules from 1962, the deducted tax must thereafter be deposited with the Government of India. The Indian Income Tax Act mandates that TDS be subtracted at the earlier of time of crediting the amount or the time of payment. This provision strives to ensure prompt tax collection and permits examination to establish the tax due for every taxpayer.

In accordance with Section 197 of the Income Tax Act, if the Assessing Officer is convinced and the applicant presents sufficient information to support the request, the Assessing Officer may provide a lower rate of TDS or an exemption from TDS. A TDS Exemption Certificate is not automatically granted; the applicant must apply to the appropriate Assessing Officer and carry the responsibility of arguing why such a certificate should be awarded. The Assessing Officer needs this proof in order to make an educated choice about the reduced rate or TDS exemption.

What is TDS?

The Indian government uses a system of taxes known as TDS, or tax deducted at source. It is an essential component of the tax system in the country and is intended to ensure that income tax is collected at the source of income generation. The payer (often an employer) withholds a specific proportion of tax under the TDS system from the payment made to the receiver (employee) before the money is disbursed. Salaries, interest on bank savings, rental income, professional fees, and other sources of income are all subject to TDS. The Income Tax Act’s provisions and the kind of income have an impact on the deduction rate. The deductor (the company in charge of withholding TDS) subsequently deposits the withheld tax with the government.

Importance of TDS

1. By establishing a trail of tax deductions, TDS encourages transparency in financial transactions. It aids in monitoring the flow of revenue and guarantees that those participating in financial transactions are responsible for paying their taxes. Tax evasion is discouraged by this transparency, which also encourages a culture of tax law compliance.
2. TDS makes it possible for the government to manage the tax system effectively. It helps tax authorities keep track of and cross-verify people’ income declarations. The government can find irregularities and take necessary measures to resolve tax non-compliance by comparing TDS information with taxpayers’ income tax filings.
3. TDS makes it easier for taxpayers to comply with the tax laws. Taxpayers are relieved of the pressure of paying the whole tax amount in a single sum at the end of the financial year since a portion of the tax due is deducted at the source.
4. Taxpayers’ cash flow burden is reduced by TDS, which makes sure taxes are taken out on a regular and timely basis. Tax filing and payment procedures are frequently complicated. TDS, however, automates the appropriate tax amount deduction for taxpayers, streamlining and simplifying the procedure.
5. Since taxpayers are no longer need to continuously check for and ensure that tax payments are being made, the automated deduction of TDS lessens the load on tax collectors.

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:-

• Section 192: Salary
• Section 193: Interest on Securities
• Section 194: Dividends
• Section 194A: Interest other than “Interest on Securities”
• Section 194C: Payment to Contractors
• Section 194D: Insurance Commission
• Section 194G: Commission etc. on the sale of lottery tickets
• Section 194H: Commission or Brokerage
• Section 194-I: Rent
• Section 194J: Fees for professional or technical services
• Section 194K: Income in respect of Units [Omitted by the Finance Act, 2016 w.e.f. 1st June 2016]
• Section 194LA: Payment of compensation on acquisition of certain immovable property
• Section 194LBB: Income in respect of Units of Investment Fund
• Section 194LBC: Income in respect of investment in the securitization trust
• 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 the 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 payment other than above section is not supposed to apply for TDS Exemption Certificate under the provision of Section 197.

How to obtain the TDS Exemption Certificate

There are various processes and particular documentation that must be submitted in order to apply for a TDS (Tax Deducted at Source) exemption certificate. To ensure a seamless application and receipt of the certificate, it’s critical to adhere to the process exactly. It is essential to determine if you meet the requirements set forth by the tax authorities before filing for a TDS exemption certificate. Based on the type of income, taxpayer category, and relevant tax laws, the eligibility requirements may change. Before beginning the application process, be ensure eligibility is there for the exemption.

According to Rule 28 of the Income Tax Rules, 1962, a person who is eligible for a certificate under the terms of the Indian Income Tax Act may submit an application using Form No. 13. The Assessing Officer is in charge of analyzing the application and making a determination regarding whether to approve or reject the applicant’s request for Nil or Low rate of TDS (Tax Deducted at Source) within 30 days of receiving it.

It is crucial to note that the certificate designating a reduced rate of tax or the absence of a tax deduction is only valid for the individual or company designated as the tax-deducting entity in the certificate. Direct submission of the application to the appropriate Assessing Officer is advised. The validity of the certificate shall be specified in the certificate itself or until the relevant Assessing Officer issues a cancellation.

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 payments 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.

Conclusion

In concluding remark, it can be summarized that the application seems to be easy but the actual receiving of the certificate after substantiating all facts and figures with evidentiary documents still the deciding factor is lying with Assessing Officer. Therefore the person thinking of applying for this certificate, wish him a best of luck for availing this provision under the Income Tax Act, 1961¹.

FAQ

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

1. https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx