TDS Rate Higher Than Your Comfort? Ways to Reduce the TDS Rates

Is your TDS rate higher than your comfort? Ways to reduce the rates

According to the provision of Section 197 in the Income Tax Act 1961, facilities of giving low tax or zero deduction of TDS (which is known as TDS exemption). The balance between the requirement of cash by the taxpayer and realizing the Government dues is the main provision of this section.

Meaning of TDS?

TDS - Tax Deducted At Source

The abbreviation of Tax Deducted At Source is TDS. According to the income tax act, after a certain threshold limit income, a minimum percentage prescribed by the government which will be deducted as tax from the income such as salaries, fees, commission, rent, etc.

A company or an individual who makes payment of the deductible amount as tax to the government is called ‘Deductor, on the other hand, receiving an end of the payment is called ‘Deductee’. Payment of tax can be in any mode, be it cash, cheque, or card.

Provision of 197 and 197a

Provision of 197 and 197A - TDS Exemption
Provision of 197 and 197A – TDS Exemption

Two sections of the Income Tax Act provide the ways to lower tax rate deduction exemption or even facility to file NIL. In any case at the time of filing return, the taxpayer thinks that the tax liability is significantly or considerably less than that of paid, then he/she claim the refund for the same amount. However, section 197 and 197A provides to file no TDS in any case taxpayer thinks his tax liability for a year is zero or nil.

For file at a low rate or nil filing, the taxpayer needs to submit an application along with form 13 to the Assessing officer of the income tax department. The taxpayer can claim a refund in their annual return in case he/she does not apply for a certificate.

Where One Can Avail No TDS

  • Selling of immovable property by a non-resident.
  • If a business is running in loss.
  • If the profit of a business is not up to taxable purview.
  • Deduction of profit u/s.10 eligibility.
  • Weighted deduction of expenditure eligibility.

Circumstances for a Lower TDS Allowed

Section 197 empowers the assessing officer to grant a certificate provided he is satisfied that the deduction of tax at a lower rate or no deduction should be made.

To concluding for such satisfaction a mechanism is provided under the rule 28AA of the income tax act 1962.

According to the rule 28AA, the officer assessing tax should be satisfied that tax liability of person whether existing or estimated tax is appropriately deducted at a lower rate or nil tax after deduction.  Sub-rule 2 of the rule 28AA depicts the parameters and conditions for the assessing officer for determining the deduction.

How to Move to No TDS or Lower TDS?

Certain procedures are needed to be followed by Assessee they are:-

  • The deducted tax is at source under sections 192, 193,194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194LA, 195.however assessing officer should be satisfied for no or lower tax deduction of TDS.
  • Submission of an application with form 13 for considering permission for no TDS or lower TDS.
  • Within 30days that application should be entertained and disposed of by the assessing officer.
  • At first instance, it is advisable to the taxpayers to file correct information. After being satisfied by the assessing office then he shall conclude by issuing a certificate under section 197.
  • After that one copy of that certificate attached along with the invoice raised for a lower tax deduction. That certificate is valid as long as AO cancels it. Under sections 194B, 194BB, 194DA, 194E, 194IA nil deduction or lower tax rate are not applicable.
  • The Deductor must have to validate the PAN details, current fiscal year and certificate number after receiving the certificate. Two flags ‘A’ and ‘B’ raised for a statement of certificate u/s 197 and certificate u/s 197A respectively.

Form 13

TDS u/s 197 - Income Tax Exemption Certificate
Form13 – TDS u/s 197 – Income Tax Exemption Certificate

It is a predefined format under which an application for lower or no TDS u/s 197 is made by a taxpayer. Following information are:

  • PAN and Name of applicant.
  • Refund purpose.
  • Certificate number.
  • Details of income for the last three years.
  • Current fiscal income.
  • Last three year of tax paid.
  • Current fiscal tax to be paid