Lower TDS Certificate

Tax is deducted at source from interest, rent, commission, professional fees, contract payments and many other receipts. When your actual tax for the year will be much lower than the TDS rate, the excess sits with the department until your refund arrives, often many months later. A lower or nil deduction certificate under section 197 lets your payers deduct at a lower rate, or not at all, from the start.

What the certificate is

It is a certificate issued by your assessing officer under section 197, directing payers to deduct tax at a stated lower rate or at nil. It avoids over-deduction and keeps cash in the business. It is particularly useful for:

• non-residents and foreign companies with Indian income;
• startups and companies with losses, low profits or MAT;
• trusts and NGOs whose income is exempt;
• professionals, contractors and small businesses with high receipts but low taxable profit.

Who can apply

Any taxpayer whose estimated tax for the year justifies a lower deduction: individuals, HUFs, companies, firms and LLPs, trusts and societies, and non-residents with Indian income. The application has to show, with figures, why the normal TDS would exceed the final tax.

Benefits

• No over-deduction, so working capital is not locked up
• Less dependence on refunds and the delays that come with them
• Tax savings from the very first payment
• More accurate advance tax planning

How the application works

1. Estimate the year: income, tax and expected receipts from each payer.
2. Apply in Form 13 on the TRACES portal, with the estimate and supporting documents.
3. Officer's review: the assessing officer may ask for clarifications or more documents.
4. Issue: the certificate is issued on TRACES and the payers can verify it with their TAN.

The officer has discretion, so the computation has to be accurate and complete. Applications are expected to be decided within 30 days of the end of the month in which they are filed.

When to apply

Ideally at the start of the financial year, before the first payment, so no excess tax is deducted. You can apply at any time during the year, but the certificate applies only to payments made after it is issued.

What the certificate covers

• Your PAN and the TAN of each payer named
• The type of income and the amount covered
• The rate of deduction
• The period of validity, usually up to the end of the financial year

If your circumstances change during the year, you can apply for a revised certificate. A certificate applies only to the payers named in it and cannot be transferred.

Examples

• An NRI earning rent in India, normally subject to 30% TDS, whose actual tax after deductions and treaty relief is much lower
• A company with brought-forward losses whose clients deduct 2% or 10% TDS on fees
• A consultant whose total income is below the taxable limit
• A registered charitable trust whose income is exempt under section 11
• An NRI selling property, where TDS on the full sale price would far exceed tax on the actual gain

Points to remember

• Regular, timely returns make the application stronger.
• Estimates must be realistic; the officer compares them with past returns.
• Section 197 certificates differ from section 195(2) and 195(3) applications, which deal with specific payments to non-residents.
• Incomplete applications or inconsistent figures are the most common reason for delay.

How we help

• Checking eligibility and the likely rate
• Preparing the income and tax estimate
• Filing Form 13 with complete documents
• Replying to the officer and attending hearings
• Sending the certificate to your payers and checking they apply it

Common questions

How long does it take?

Usually a few weeks, depending on the officer and how complete the application is. Applying early in the year avoids deductions at the full rate in the meantime.

Does the certificate cover all my payers?

Only the payers named in it, up to the amounts stated. You can include several payers in one application.

Can I apply for a property sale as an NRI?

Yes. A certificate for a property sale should be obtained before the sale is completed, so the buyer deducts tax on the gain rather than the full price.

Section and form numbers on this page refer to the Income-tax Act, 1961 and its rules. From 1 April 2026 the Income-tax Act, 2025 applies, with new section and form numbers; the requirements described here are broadly unchanged. We use whichever numbering applies to your transaction date.