Certificate for deduction at lower tax rate under Section 197 of the Income Tax Act, 1961

Section 197 of the Income Tax Act, 1961 provides for the facility of NIL or Lower tax rate deduction of TDS. It was originally in the statute. Since then, over a period of time, it had undergone several changes, widening its scope beyond recognisation from what it was when it was. As on date, the section reads as under:—

Text of section 197

“197. Certificate for deduction at lower rate

(1) ^[1][Subject to rules made under sub-section (2A), ^[2][where, in the case of any income of any person ^[3][or sum payable to any person], income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, ^[4][194], 194A, ^[5][194C], 194D, ^[6][194G], ^[7][194H], ^[8][194-I], ^[9][194J], ^[10][194K], ^[11][194LA, ^[12][194LBB, 194LBC], ^[13][194M], ^[14]194-O] and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax , as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

(2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

^[15][(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

^[16][xxx]

KEY NOTE

1. Substituted for “Where in the case of any income of any person other than a company” by the Finance Act, 1987 with effect from 01.06.1987.

2. Substituted by the Finance Act, 1992 with effect from 01.06.1992.

3. Inserted by the Finance Act, 2003 with effect from 01.06.2003.

4. Inserted by the Finance Act, 1993 with effect from 01.06.1993.

5. Inserted by the Finance Act, 1993 with effect from 01.06.1993.

6. Inserted by the Finance Act, 2003 with effect from 01.06.2003.

7. Inserted by the Finance Act, 2001 with effect from 01.06.2001.

8. Inserted by the Finance Act, 1994 with effect from 01.06.1994.

9. Inserted by the Finance Act, 2003 with effect from 01.06.2003.

10. Inserted by the Finance Act, 1995 with effect from 01.07.1995.

11. Inserted by the Finance (No. 2) Act, 2004, with effect from 01.10.2004.

12. Inserted by the Finance Act, 2016 with effect from 01.06.2016.

13. Substituted by the Finance (No. 2) Act, 2019, with effect from 01.09.2019.

14 Inserted by the Finance Act, 2020, with effect from 01.04.2020.

15. Inserted by the Finance Act, 1987 with effect from 01.06.1987.

16. Sub-section (3) omitted by the Finance Act, 1986 with effect from 01.06.1987.

Income covered under section 197

Section 197 application can be made by the recipient of income in case of the following category of receipts where TDS is required to be made under the following sections:—

S. No.	Section
(i)	192	Salary income
(ii)	193	Interest on securities
(iii)	194	Dividends
(iv)	194A	Interest other than interest on securities
(v)	194C	Contractor’s income
(vi)	194D	Insurance commission
(vii)	194G	Commission/remuneration/prize on lottery tickets
(viii)	194H	Commission or brokerage
(ix)	194I	Rent
(x)	194J	Fee for Professional or technical services
(xi)	194K	Income in respect of units.
(xii)	194LA	Compensation on acquisition of immovable property
(xiii)	194LBB	Income in respect of units of investment fund
(xiv)	194LBC	Income in respect of investment in securitization trust
(xv)	194M	Payment to resident contractors and professionals
(xvii)	194O	Payment of certain sums by e-commerce operator to e-commerce participant.
(xviii)	195	Income of non-residents

 

Section 197 does not apply to other provisions

Therefore, section 197 does not apply to other provisions of tax deduction like sections 194B, 194BB, 194DA, 194E, 194EE, 194F, 194-IA, 194-IB, 194-IC and also to provisions like sections 196A, 196B, 196C and 196D.

Eligibility for making an Application under section 197

Application can be made where income of any person attracts TDS as per above mentioned sections and income of the recipient justifies non-deduction or lower deduction of income-tax based on his estimated final tax liability.

 

Form 13 - Online Application - Application For Lower / Nil Deduction Certificates under section 197 - Present Procedure

(i)    Application in Form No. 13

        Application to be in Form 13 online for all assesses. (Link to TRACES for Form No. 13)

 

(ii)    Application on TRACES Portal -

The tax-payer/Deductee shall submit the Form 13 along with supporting documents electronically,

(i) under digital signature; or

(ii) through electronic verification code.

 

DSC of the Authorised Person registered on the Traces needs to sign or through a-verification (Net   Banking) permitted.

Registration in the TRACES portal is mandatory. Consequently, if the taxpayer is not registered in TRACES, then, one needs to first obtain registration in TRACES. For registration in TRACES,follow the undermentioned steps:

(a)           Visit the site https://contents.tdscpc.gov.in/

(b)           Click on Login and select Register as New User option;

(c)           Select ‘Taxpayer’ from the drop-down list;

(d)           After selecting Proceed, the registration form would be displayed;

(e)           Fill in the appropriate information and submit and the registration in TRACES would be done.

(f)     Login in TRACES and under ‘Statements / Form’ tab select ‘Request for Form 13’;

(g)     Form 13 would be displayed and appropriate details need to be filled up by the applicant; and

(h)         Once all the details are filled up and appropriate documents are uploaded, the applicant is required to submit the form 13 either by using Digital Signature or by using EVC.

(iii)    Details of the Assessee making the Application;

(iv)    Details of Income Tax Returns filed during the last three Assessment Years containing the Returned Income and Taxes paid/payable- Refund's Due;

(v)     Details of the Current Year (Provisional Details)

(vi)    Details of Sales, profits of the last three years along with the taxes deducted;

(vii)   Details of existing liablities on the date of application;

(viii)  Estimated Total Income for the year for which the certificate is sought;

(ix)    Details of Tax liability on the estimated income along with the tax liability discharges;

(a)    Computation of Estimated Total Income to be given Head wise;

(b)   Option for submission of clarification in respect of increase/decrease in income in comparision to previous year given

(x)    Nature of payments for which the certificate is sought;

(xi)   Details of the Deductee in the required format along with the PAN and other details;

(xii)  Other documentary evidences in support of the said application;

(xiii) Indemnity Bond for liability discharge.

 

Generation of Certificate

(i)       After successful submission of an application in FORM 13 through TRACES by the applicant, on the basis of the information/details furnished in FORM 13, the application shall be forwarded to the appropriate TDS assessing officer.

(ii)     After carrying out appropriate verification of information/details furnished in FORM 13, and on receipt of approval of the competent authority, the Assessing Officer would generate the certificate.

(iii)    Since the certificate would be system generated, there will not be any requirement of the signature. The applicant, as well as the deductor, can download the generated certificate through their TRACES login.

Timeline for making the Application

Income-tax provision does not provide for a deadline to make an application under Section 197. However, as TDS is made on income of ongoing financial year it is advisable to make an application at the beginning of financial year in case of regular income throughout the financial year and as and when the need arises in case of one-off incomes.

There is no time limit for application in Form No. 13. Application can be filed at any time before actual deduction of tax at source (it may be filed in the current financial year or even before the commencement of the financial year. -  [Indus Towers Ltd. v. CIT (2014) Taxman 402 (Del)]

Application for grant of certificates under section 197 for lower/nil TDS/ TCS to be filed electronically

Application for grant of certificates under section 197 for lower or no deduction/collection of income-tax to be made electronically in Form 13. Online application be made by logging in to TRACES.

 

Application for grant of certificates for deduction of income-tax at any lower rates or no deduction of income-tax [Rule 28]

“28. (1) An application by a person for grant of a certificate for the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, under sub-section (1) of section 197 shall be made in Form No. 13 electronically,—

(i) under digital signature; or

(ii) through electronic verification code.

(2) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down procedures, formats and standards for ensuring secure capture and transmission of data and uploading of documents and the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and  retrieval policies in relation to the furnishing of Form No. 13.”

 

Certificate for deduction at lower rates or no deduction of tax from income other than dividends [Rule 28AA]

Text of Rule 28AA

“28AA. Certificate for deduction at lower rates or no deduction of tax from income other than dividends

(1) Where the Assessing Officer, on an application made by a person under sub-rule (1) of rule 28 is satisfied that existing and estimated tax liability of a person justifies the deduction of tax at lower rate or no deduction of tax, as the case may be, the Assessing Officer shall issue a certificate in accordance with the provisions of sub-section (1) of section 197 for deduction of tax at such lower rate or no deduction of tax.

(2) The existing and estimated liability referred to in sub-rule (1) shall be determined by the Assessing Officer after taking into consideration the following:—

(i) tax payable on estimated income of the previous year relevant to the assessment year;

(ii) tax payable on the assessed or returned “or estimated income, as the case may be, of last four” previous years;

(iii) existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957;

(iv) advance tax payment, tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28;

(v) tax deducted at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28; and

(vi) tax collected at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28.

(3) The certificate shall be valid for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.

(4) The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate:

PROVIDED that where the number of persons responsible for deducting the tax is likely to exceed one hundred and the details of such persons are not available at the time of making application with the person making such application, the certificate for deduction of tax at lower rate may be issued to the person who made an application for issue of such certificate, authorising him to receive income or sum after deduction of tax at lower rate.

(5) The certificates referred to in sub-rule (4) shall be valid only with regard to the person responsible for deducting the tax and named therein and certificate referred to in proviso to the sub-rule (4) shall be valid with regard to the person who made an application for issue of such certificate.

(6) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down procedures, formats and abcaus.in standards for issuance of certificates under sub -rule (4) and proviso thereto and the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the issuance of said certificate.” se

 

How lower rate is determined

The lower rate is determined on the basis of the higher of the following rates:—

(a) Average rate of the current year - Current year‘s average rate is determined on the basis of total income-tax payable on estimated income, as reduced by the sum of advance tax already paid and tax already deducted at source, as a percentage of amount in respect of which the certificate of lower tax deduction is required.

(b) Average of the average rate of tax of preceding three years - Average of the average rate of tax assessed in the last three assessment years and total tax paid for each year.

Validity of certificate

The certificate is valid only for the person named therein and will remain valid for the assessment year so specified in the certificate, unless it is cancelled by the Assessing Officer at any time before expiry of specific period. No reason need be given for cancellation of certificate by Assessing Officer.

Certificate of no deduction of tax in case of certain entities [Rule 28AB]

“28AB. (1) Subject to the conditions specified in sub-rule (2), a person—

(a) in receipt of income or deemed income derived from property held under trust wholly for charitable or religious purposes and who claims exemption under section 11 or section 12; or

(b) required to file a return in respect of a scientific research association, news agency, association or institution, fund or trust or university or other educational institution or any hospital or other medical institution or trade union referred to in sub-section (4C) of section 139, may make an application to the Assessing Officer for the grant of a certificate under sub-section (1) of section 197 authorizing him to receive incomes without deduction of tax at source.

(2) The conditions referred to in sub-rule (1) are the following, namely:—

(i) the person concerned has furnished the returns of income for all assessment years for which such returns became due on or before the date on which the application under sub-rule (1) is made; and

(ii) the trust, scientific research association, news agency, association or institution, fund or trust or university or other educational institution or any hospital or other medical institution or trade union referred to in sub-rule (1) is for the time being approved for the purpose of exemption from income-tax;

(iii) the applicant gives a list of deductors from whom amounts are to be received without deduction of tax at source every six months alongwith the names, addresses and the amounts received.

(3) An application for the certificate is to be made to the Assessing Officer in accordance with sub-rule (1) of rule 28.

(4) The Assessing Officer may issue a certificate authorizing payment of incomes without deduction of tax at source if he is satisfied that all the conditions laid down in sub-rule (2) are fulfilled and the issue of any such certificate will not be prejudicial to the interests of revenue.

(5) The applicant may furnish copies of certificate issued under sub-rule (4) to the person responsible for paying the income for the purpose of no deduction of tax at source.

(6) The certificate shall be valid for the financial year specified therein unless it is cancelled by the Assessing Officer at any time before the expiry of the said financial year.

(7) An application for a fresh certificate may be made, if the assessee so desires, after the expiry of the period of validity of the earlier certificate.”

 

Certificate of no deduction of tax or deduction at lower rates from dividends [Rule 29]

“29. (1) The Assessing Officer, on being satisfied that the total income of the shareholder justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, shall, on an application made under sub-rule (1) of rule 28 by the assessee, give him a certificate authorising the payment of a dividend to him, under sub-section (1) of section 197, without deduction of tax or, as the case may be, after deduction of tax at rates lower than the rates in force only if the following conditions are satisfied, namely:—

(a) The shares in respect of which the certificate is sought for by him—

(i) are shares in public companies; and

(ii) stand in his name and are beneficially owned by him, and the dividends therefrom are not includible in the total income of any other person under sections 60 to 64, or stand in his name and are held by him under trust wholly for charitable or religious purposes, and the dividends therefrom are exempt from tax under the provisions of sections 11 to 13.

(b) An application for the certificate is made to the Assessing Officer in accordance with sub-rule (1) of rule 28.

(2) The certificate shall be valid for such period (not exceeding three years from the date of certificate), as the Assessing Officer may specify therein, unless it is cancelled by him at any time before the expiry of the specified period. An application for a fresh certificate may be made, if required, after the expiry of the period of validity of the earlier certificate.

(3) The certificate shall be valid only for the person named therein, and shall cease to be operative from the date of notice to the company of the transfer of any of the shares mentioned therein to another person, in respect of the shares so transferred.

(4) The certificate shall be issued direct to the principal officer of the company under advice to the applicant shareholder.”

Application for certificate for collection of tax at lower rates under section 206C(9) [Rule 37G]

“37G. (1) An application by the buyer or licensee or lessee for a certificate under section 206C(9) shall be made in Form No. 13 electronically,—

(i) under digital signature; or

(ii) through electronic verification code.

(2) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down procedures, formats and standards for ensuring secure capture and transmission of data and uploading of documents and the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the furnishing of Form No. 13.”

Certificate for collection of tax at lower rates from buyer under section 206C(9) [Rule 37H]

“37H. (1) Where the Assessing Officer, on an application made by a person under sub-rule (1) of rule 37G is satisfied that existing and estimated tax liability of a person justifies the collection of tax at lower rate, the Assessing Officer shall issue a certificate in accordance with the provisions of sub-section (9) of section 206C for collection of tax at such lower rate.

(1A) The existing and estimated tax liability referred to in sub-rule (1) shall be determined by the Assessing Officer after taking into consideration the following, namely:—

(i) tax payable on estimated income of the previous year relevant to the assessment year;

(ii) tax payable on the assessed or returned or estimated income, as the case may be, of the last four previous years;

(iii) existing liability under the Act and the Wealth-tax Act, 1957 (27 of 1957);

(iv) advance tax payment, tax deducted at source and tax collected at source for the relevant assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 37G.

(2) The certificate given under sub-rule (1) shall be valid for the assessment year specified in that certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.

(3) An application for a fresh certificate may be made, if required, after the expiry of the period of validity of the earlier certificate given under sub-rule (1).

(4) The certificate shall be valid only for the person named therein.

(5) The certificate shall be issued direct to the person responsible for collecting the tax under advice to the buyer who made an application for issue of such certificate.

(6) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down procedures, formats and standards for issuance of certificate under sub-rule (5) and the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the issuance of said certificate.”

 

CBDT clarifies on certificates for lower rate/nil TDS/TCS certificate Order under section 119 of the Income Tax Act, 1961 on issue of certificates for lower rate/nil deduction/collection of TDS or TCS under Sections 195, 197 and 206C(9).

F. No. 275/25/2029- IT( B), dated 09.04.2020

Subject : Clarification on orders dated 31.03.2020 and 03.04.2020 issued under section 119 of the Income-tax Act, 1961 (the Act) by CBDT vide F. No. 275/25/2020- IT(B) regarding issuance of certificate for lower rate/nil deduction/collection of TDS, TCS under sections 195, 197 and 206C(9) of the Income-tax Act. 1961—Regarding

Representations have been received seeking further clarifications on orders dated 31.03.2020 and 03.04.2020 issued under section 119 of the Act by CBDT vide F. No. 275/25/2020-IT(B) regarding issuance of certificate for lower rate/ nil deduction/collection of TDS/TCS under sections 195, 197 and 206C(9) of the Act. The matter has been examined in the Board and following clarifications w.r.t. above are issued:

(i) Issue of validity period of lower/nil deduction/collection certificates of Financial year 2019-10:

For the purpose of Para 2 (a) and 2 (b) of the order dated 31.03.2020, the lower/nil deduction/collection certificates will be valid for the particular period for which these were issued for Financial year 2019-20 and also for further period from 01.04.2020 to 30.06.2020 for Financial year 2020-21 subject to conditions as mentioned in the order dated 31.03.2020. For example. if a certificate was issued for a period from 01.10.2019 to 15.12.2019, the same shall be valid for Financial year 2019-20 for the period from 01.10.2019 to 15.12.2019, and for Financial year 2020-21, the same shall be valid from 01.04.2020 to 30.06.2020 subject to conditions as mentioned in the order dated 31.03.2020.

(ii) Issue of threshold/transaction limit for lower/nil deduction/ collection certificates of F.Y. 2019-20:

For the purpose of Para 2 (a) and 2 (b) of the order dated 31.03.2020, threshold/transaction limit mentioned in lower/nil deduction/ collection certificate issued for Financial year 2019-20 will be taken fresh for period from 01.04.2020 to 30.06.2020 for Financial year 2020-21 and the amount of threshold limit will be the same as was assigned for these certificates for Financial year 2019-20 subject to other conditions mentioned in the order dated 31.03.2020.

(iii) Issue of approval and communication of lower/nil deduction/ collection certificates:

Official entails or other electronic communication may be used by field authorities of Income Tax Department for internal approval for issue of lower/nil deduction/collection certificates and for communication of the same.

(iv) Issue of new/different TAN mentioned for lower/nil deduction/ collection application for FY 2020-21 or revision of rates mentioned in certificates for Financial year 2019-20:

In case the payee or buyer/licensee/lessee taxpayer had a certificate for lower deduction for Financial year 2019-20 and an application has been made for Financial year 2020-21 for a new different TAN mentioned in the application the relaxation as provided in Para 2(a) and 2(b) of the order dated 31.03.2020 shall not apply to such cases and they have to apply afresh as per procedure mentioned in annexure of the above mentioned order. Similarly, if the rates of TDS/TCS mentioned in old certificates are higher and the taxpayer wants revision of the rates in view of impact of Covid-19 outbreak on its business, the relaxation as provided in Para 2(a) and 2(b) of the order dated 31.03.2020 shall not apply to such cases and they will have to follow the procedure mentioned in the annexure of the above mentioned order and apply afresh.

This issues with the approval of Member (IT&R), CBDT.

 

Procedure for e-filing of Form 13 at TRACES Portal certificate for nil or lower rate TDS

Procedure, format, standards for electronic filing of online Form 13 at TRACES Portal for grant of certificate for nil TDS or at lower rate

F. No. Pr. DGIT(S)/CPC(TDS)/NOTIFICATION/2018-19 – Notification No. 08/2018, dated 31.12.2018

Subject : Procedure, format and standards for filing an application for grant of certificate for deduction of Income-tax at any lower rate or no deduction of Income-tax under sub-section (1) of Section 197/collection of the tax at any lower rate under sub section (9) of Section 206C of the Income-tax Act, 1961 through TRACES—Reg.

1. As per sub-section (1) of section 197 of the Income-tax Act, 1961, where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-1, 194J, 194K, 194LA, 194LBB, 194LBC and 195, if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. Further as per sub-section (9) of section 206C of the Income-tax Act, 1961, where the Assessing Officer is satisfied that the total income abcaus.in of the buyer or licensee or lessee justifies the collection of the tax at any lower rate than the relevant rate specified in sub-section (1) or sub-section (1C), the Assessing Officer shall, on an application made by the buyer or licensee or lessee in this behalf, give to him a certificate for collection of tax at such lower rate than the relevant rate specified in sub-section (1) or sub-section (1C).

2. Vide Central Board of Direct Taxes Notification 74/2018, dated 25.10.2018, Rule 28/37G of the Income-tax Rules, 1962 has been amended to provide for filing an application for grant of certificate for deduction of Income-tax at any lower rate or no deduction of Income-tax under sub-section (1) of Section 197/ collection of the tax at any lower rate under sub-section (9) of Section 206C of the Income-tax Act, 1961 to be made in Form No. 13 electronically in accordance to the procedures, formats and standards for ensuring secure capture and transmission of data and uploading of documents to be laid down by the Principal Director General of Income-tax (Systems).

3. In exercise of the powers delegated by the Central Board of Direct Taxes, under sub-rule (2) of Rule 28/sub-rule (2) of Rule 37G of the Income-tax Rules, 1962, the Principal Director General of Income-tax {Systems) hereby specifies the procedure, format and standards for the purpose of electronic filing of Form No. 13 and generation of certificate under sub-section (1) of section 197/ sub-section (9) of section 206C through TRACES, as per procedure in the succeeding paragraphs.

4. Procedure for electronic filing of Form 13 shall be as follows:

4.1 The tax-payer/Deductee shall login in to the TRACES website for submission of application in Form 13 electronically, for grant of certificate for deduction of Income-tax at any lower rate or no deduction of Income-tax under sub-section (1) of Section 197/ collection of the tax at any lower rate under sub-section (9) of Section 206C of the Income-tax Act, 1961 through TRACES, as per procedure specified herein.

4.1.1 The tax-payer/Deductee who is not registered at TRACES shall be first required to register at TRACES (www.tdscpc.gov.in) for login and filing application in Form 13. Detailed procedure for registration can be accessed through the link https://contents.tdscpc.gov.in/en/ taxpayer-registration-login-etutorial.html

4.2 The tax-payer/Deductee shall submit the Form 13 along with supporting documents electronically,—

(i) under digital signature; or

(ii) through electronic verification code.

4.3 After an online request for lower/no deduction certificate has been submitted successfully, it shall reach the TDS-Assessing Officer on ‘TRACES AO Portal’ on his/her The tax-payer/Deductee can track the status of his/her application through option ‘Track Request for Form 13’ under the tab ‘Statement/Forms’.

5. Procedure for assignment of application to the TDS Assessing Officers:

5.1 On the basis of details furnished by the applicant in Form 13, the application shall be forwarded to the concerned TDS Assessing Officer.

5.2 For applications filed in Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad and Pune, cases where revenue foregone exceeds a sum of 50 Lakh, the applications shall be assigned to the DCIT/ACIT exercising jurisdiction over TDS matters, and in other cases, the applications shall be assigned to the ITO exercising jurisdiction over TDS matters. If the jurisdiction orders are otherwise, the applications shall be assigned in accordance with such jurisdiction orders.

5.3 For applications filed in remaining cities/towns/jurisdictions, the applications where revenue foregone exceeds a sum of 10 Lakh, application shall be assigned to the DCIT/ACIT exercising jurisdiction over TDS matters, and in other cases, the abcaus. In applications shall be assigned to the ITO exercising jurisdiction over TDS matters. If the jurisdiction orders are otherwise, the applications shall be assigned in accordance with such jurisdiction orders.

5.4 After the applicant has successfully submitted application in Form 13, the following data, which are considered relevant and essential for the Assessing Officer to take a decision on the application will be obtained from CPC -ITR, E-filing and ITBA modules:

(i) Processed data of Income Tax Returns of previous 4 Years (if available).

(ii) PAN demand

(iii) e-filed Income Tax Returns of previous 4 Years.

(iv) Audit Report (along with form 3CD if accounts are audited) of previous 4Years.

(v) Assessment Orders of previous 4 Years (if available).

5.5 The application in Form 13 will then be assigned to the Assessing Officer exercising jurisdiction over TDS matters in respect of the applicant as explained in paras 2 and 5.3. Such applications can be accessed by the Assessing Officer through path <Lower/No Deduction Certificate > Generate Certificate> Certificate under section 197(1)/206C(9) and select ‘Open/Restored’ Request(s)’.

6. Processing of the tax-payer/Deductee’s request by the TDS Assessing Officer, Range Heads and Commissioners of Income-tax:

6.1 Role of TDS Assessing Officer:

The Assessing Officer shall be required to process the application through TRACES – AO Portal after login using his/her credentials.

6.1.1 By navigating through the path ‘Lower/No Deduction Certificate > Generate Certificate> Certificate under section 197(1J/206C (9) and select ‘Open/Restored’ Request(s}’, the Assessing Officer shall be able to access the following information:

(i) Information furnished by the tax-payer/Deductee.

(ii) Documents submitted by the tax-payer/Deductee.

(iii) Information essential for processing the request in respect of the taxpayer/Deductee, as received from

CPC (ITRL E-filing and

(iv) Information essential for processing the request in respect of the tax payer/Deductee, as available at

CPC (TDS).

6.1.2 If the Assessing Officer requires any further clarification or information or documents from the applicant for arriving at his/her decision, the same shall be obtained online using the option “Seek Clarification” available within the query raised by the Assessing Officer shall be forwarded to the applicant through systems for furnishing a suitable response. The query will be available to the applicant in his/her/its lnbox in TRACES Portal through the applicants login. The response submitted by the tax- payer/Deductee shall be visible to the Assessing Officer within the functionality for taking a decision on the application.

6.1.3 Based on the parameters defined in rule 28AA/28AB/37H of the Income-tax Rules, 1962 an estimated rate of tax will be suggested by the system. However, the AO shall be free to arrive at independent rate based on his/her method of calculation or by taking into consideration any other information available with him/her.

6.1.4 Based on his/her findings, the Assessing Officer shall allow the deduction/collection at such rate as evidenced in the “Permitted Tax Rate Table” by making any adjustments in respect of the rate, if the Assessing Officer may state the reason for arriving at a modified rate, if so, is the case.

6.1.5 Once the Assessing Officer has taken a decision on the application in Form 13, the application will be forwarded to the supervisory authority, i.e. the JCIT or JCIT & CIT for according administrative approval in accordance with CBDTs Instructions on the subject.

6.2 Role of Range Head:

The Range Head shall be required to process the application through TRACES – AO Portal after login using his/her credentials for granting administrative approval to the recommendation of the AO or otherwise.

6.2.1 The Range Head may view the application details, received for administrative approval, through the path ‘Lower/No Deduction Certificate> Generate Certificate> Certificate u/ s 197(1)/206C(9) and select ‘Open Request(s)‘. The following information will be available for viewing by the Range Head:

(i) Information furnished by the tax-payer/Deductee.

(ii) Documents submitted by the tax-payer/Deductee.

(iii) Information essential for processing the request in respect of the taxpayer/Deductee, as received from

CPC (ITR), E-filing and ITBA.

(iv) Information essential for processing the request in respect of the tax payer/Deductee, as available at CPC (TDS).

(v) Recommendation of the TDS Assessing Officer

6.2.2 If required, the Range Head may seek clarification from the AO and after submission of clarification by the AO through the AO Portal, the Range Head shall take a final decision on the All these steps shall be carried out on AO Portal in electronic mode under respective logins of Range Head and AO.

6.2.3 After a decision on the application has been taken by the Range Head, if the revenue foregone is within the powers conferred upon the Range Head (as per CBDTs Instructions on the subject) to accord administrative approval, the application will be marked back electronically on AO Portal to the Assessing Officer for issuance/rejection of the certificate under section 197(1)/206C(9) of the Income-tax Act, 1961. The procedure for issuance of certificate is prescribed below in paragraph 7. However, if the revenue foregone is within the powers conferred upon the CIT (as per CBDTs Instructions on the subject) to accord administrative approval, the application shall be forwarded to the CIT for a decision in the matter.

6.3 Role of the CIT:

The CIT shall be required to process the application through TRACES – AO Portal after login using his/her credentials for granting administrative approval to the recommendation of the AO or otherwise.

6.3.1 The CIT may view the application details, received for administrative approval, through the path ‘Lower/No Deduction Certificate > Generate Certificate> Certificate u/s 197(1)/206C (9) and select ‘Open Request(s}’. The following information will be available for viewing by the CIT:

(i) Information furnished by the tax-payer/Deductee.

(ii) Documents submitted by the tax-payer/Deductee.

(iii) Information essential for processing the request in respect of the tax payer/Deductee, as received from CPC (ITR) E-filing and ITBA.

(iv) Information essential for processing the request in respect of the tax payer/Deductee as available at CPC (TDS).

(v) Recommendation of the TDS Assessing Officer.

(vi) Recommendation of the Range Head

6.3 .2 If any clarification is required by the CIT, the application may be sent back to the Range Head through TRACES AO Portal for submitting clarification on the observations of the CIT by the Range Head/AO. All these steps shall be carried out on AO Portal in electronic mode under respective logins of the CIT, Range Head and AO.

6.3.3 The Range Head shall resubmit the case to CIT alongwith the clarifications as required by the CIT. This will be carried out electronically on AO Portal.

6.3.4 Based on the information available and the report of the Range Head and the Assessing Officer, the CIT shall take a decision in the case.

6.3.5 After a final decision on the application has been taken by the CIT, the application will be marked back electronically on AO Portal to the Assessing Officer for issuance/ rejection of the certificate under section 197(1)/206C(9) of the Income-tax Act, 1961. The procedure for issuance of certificate is prescribed below in paragraph 7.

7. Issuance of Certificate:

7.1 Once approval of the competent authority has been received, the Assessing Officer shall generate the approved certificate I close the request (in case of rejection) based on decision taken on application filed in Form 13 through TRACES AO Portal. This will be carried out electronically on AO Portal and the certificate will be system generated and hence will not require a signature.

7.2 The generated certificates shall be available to the deductor and the applicant for download through their TRACES login.

7.3 The issued certificates shall be available to the officers for view through path ‘Lower/No Deduction Certificate > History> Certificate Issued‘ .

8. This issues with prior approval of the Pr. Director General of Income-tax (Systems).

Exception from online filing of application under sections 197 and 206C (9) in the cases of NRIs and resident applicants Order under section 119(1) of Income-tax Act, 1961—F. No. 275/2912018- IT(B), dated 24.12.2018

Subject : Exception from online filing of application under sections 197 and 206C(9) in the cases of NRIs and resident applicants

Vide Notification No. 74/2018, dated 25.10.2018, rule 28 of the Income-tax Rules was amended to prescribe electronic filing of application for lower deduction or no deduction under section 197 using digital signature or EVC.

Similar changes were also made in rule 37G to prescribe electronic filing of application under section 206C(9) for lower or nil rate of tax collection at source (TCS).

The functionality for online filing has since been made available by CPCTDS through TRACES portal. Form No. 13 is the common form for application under sections 197 and 206C(9).

2. For proper administration of the provisions of sections 197 and 206C (9) and to remove genuine hardship being faced by certain applicants in filing online application in Form No. 13, the Board by virtue of the powers conferred under section 119(1) of the Income-tax Act hereby—

(i) Allows non-resident Indians (NRIs), who are not able to register themselves on TRACES, to file manual application in Form No. 13 before the TDS officer or in ASK Centers till 31.03.2019.

(ii) Allows resident applicants to file manual application in Form No. 13 before the TDS officer or in ASK Centers till 31.12.2018.

Issue certificate of Nil or lower rate TDS under sections 197 and 195 within 30 days

Certificate of Nil/lower rate TDS under sections 197 and 195 of the Income Tax Act, 1961 to be issued within 30 days

As per CBDT’s instruction (275/20/2018-IT, dated 26.07.2018) issued in this regard, attention has been drawn to the time-line of 30 days prescribed as per the Citizen’s Charter-2014 for issue of certificates for no deduction of tax or deduction of tax at lower rate under section 197 or 195 of the Act. The instruction says that several instances of inordinate delay in issue of such certificates and non-adherence to the said time-line have been brought to the notice of the Board, which have been viewed adversely.

The CBDT has reiterated that the 30 days time-line for issue of certificates under section 197 or 195 of the Act must be adhered to scrupulously and disposal of applications beyond the said time limit must be for justifiable reasons to be recorded in writing and duly approved by CIT (TDS)/CIT(Intl. Tax) concerned. It has been stated that the Board shall view seriously, any delay without valid reasons and shall hold CIT (TDS)/CIT (Intl. Tax) concerned responsible in this regard.

In case of Charitable Trusts/religious trusts and societies

In case of Charitable Trusts/religious trusts and societies whose income are exempted under section 11 or section 12, can request to Income Tax Officer for Form 197 to claim exemption for unlimited amount of interest. The application is submitted by the trust in Form No.13. The Income Tax Officer will issue such certificate if the following conditions are satisfied:—

(i) The person concerned has submitted all the income-tax or TDS returns for all assessment years before the date of application.

(ii) The person concerned is approved for the purpose of income-tax exemption.

(iii) The name, addresses, PAN Numbers of the persons from whom the interest is to be received during the financial year. The amount of interest to be received from them is also to be mentioned during the particular financial year.

(iv) The certificate given by Income Tax Officer is valid only for one Financial Year.

The societies/religious trust/charitable trust can submit Form 15-G up to the interest receivable for Rs. 2,50,000/- from a single person, during a financial year 2018-19. For example, there are two persons from whom a trust has to receive interest Rs. 2,40,000/- and Rs. 2,30,000/- during a financial year 2018-19. In this case, the trust can submit separate 15-G forms to different parties.

If the interest amount is more than Rs. 2,50,000/-, then the above mentioned persons have to apply with Income Tax Officer for TDS exemption certificate. This certificate can be issued for any amount of interest to be received during the financial year.

Certificate for lower rate – When tax was deducted on the basis of certificate issued by the Assessing Officer i.e. on handling and transport charges under Section 194C and on, warehousing charges under Section 194-I, the ITO (TDS) was unjustified in holding assessee in default for short deduction of tax on grounds that assessee was liable to deduct TDS on entire amount under Section 194-I

Allowing the appeal of the assessee the Tribunal held that when tax was deducted on the basis of certificate issued by the Assessing Officer i.e. on handling and transport charges under section 194C and on, ware housing charges under section 194-I, the ITO (TDS) was unjustified in holding assessee in default for short deduction of tax on grounds that assessee was liable to deduct TDS on entire amount under section 194-I. (Assessment year 2009 - 10) - [Kribhco Shyam Fertilizers Ltd. v. ITO (TDS) (2018) 172 ITD 319 (ITAT Lucknow)]

CBDT’s Instruction No. 7/2009 [F. No. 275/23/2007- IT-(B)], dated 22.12.2009

Subject : Section 197 of the Income-tax Act, 1961 – Deduction of tax at source – Certificate of lower deduction or non-deduction of tax at source

I am directed to bring to your notice on the subject of issue of certificates under section 197. Instruction No. 8/2006, dated 13.10.2006, was issued stating that certificates for lower deduction or nil deduction of TDS under section 197 are not to be issued indiscriminately and for issue of each certificate, approval of the JCI/Addl. CIT concerned need to be taken by the Assessing Officer (AO). Further, a letter of even number, dated 06.10.2008 was issued stating that power of issue of certificates under section 197 would ordinarily be exercised by the officers manning TDS Administration. However, instances are being brought to the notice of Board that the Assessing Officers are issuing certificates for lower or non-deduction of tax at source under section 197 indiscriminately, in contravention of relevant Income Tax Rules and Instructions.

I am, therefore, directed to communicate to you that further to the contents of Instruction No. 8/2006, prior administrative approval of the Commissioner of Income Tax (TDS) shall be taken (where the cumulative amount of tax foregone by non-deduction/lesser rate of deduction of tax arising out of certificate under section 197 during a financial year for a particular assessee exceeds Rs. 50,00,000 in Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad and Pune stations and Rs. 10,00,000 for other stations. Once the CIT (TDS) gives administrative approval of the above, a copy of it has to be endorsed invariably to the jurisdictional CIT also. The content of the above instruction may be brought to notice of all officers working in your charge for strict compliance.

CPC (TDS) – Deductors must deduct lower rate TDS on production of system generated certificate under section 197 to avoid defaults for wrong quoting of certificate number

The CBDT has issued an advisory in which it is pointed out that instances of huge default of ‘Short Deduction’ have been observed due to wrong quoting of 197 certificate number. The scenario of wrong 197 certificate generally arises when the deductor accepts from deductee a manually issued lower deduction certificate by assessing officer & quotes the same in TDS statements. It is explained that CPC (TDS) has provided the facility of validating the 197 certificate to the deductors and that if the 197 certificate is not valid as per TRACES validation, the deductor should always insist upon an ITD system generated certificate having a unique 10 digit alpha numeric number. The entire procedure for this is explained in the advisory.

Press Release, Dated 01.01.2016

Advisory for Deductors

1. Deductors deduct tax at lower rate on payment/credit to deductee on production of certificate duly issued by assessing officers under section 197. Deductors quote such certificate number in quarterly TDS statement. Instances of huge default of ‘Short Deduction’ have been observed due to wrong quoting of 197 certificate number. The scenario of wrong 197 certificate generally arises when the deductor accepts from deductee a manually issued lower deduction certificate by assessing officer & quotes the same in TDS statements.

2. CPC (TDS) has provided the facility of validating the 197 certificate to the deductors on www.tdscpc.gov.in (TRACES). This enables a deductor to first validate the 197 certificate given to him by their deductees and then furnish the same in the TDS/TCS statement.

3. If the 197 certificate is not valid as per TRACES validation, the deductor should always insist upon an ITD system generated certificate having a unique 10 digit alpha numeric number. This would minimize the generation of default of “Short Deduction due to 197 certificate”.

4. This also applies to certificates issued under section 195(2) and 195(3) by LTU & international taxation officers.

5. Instructions to field authorities to issue only system generated certificate were issued vide instruction No. 36 through F.No. SW/TDS/2/2/08- DIT(S)-II[Vol.II], dated July 15th, 2009 (Annexure).

Deduction of tax deducted at source and depositing with Government by the payee does not decide the final tax liability of the recipient of the income which would be the subject-matter of assessment - Petition is dismissed

Dismissing the petition the Court held that under section 197(1), it is an Assessing Officer who can entertain and decide an application of an assessee for either total exemption or permission for reduced deduction of TDS. The statute has used the language that if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any low rates or no deduction of income-tax, as the case may be, the Assessing Officer shall on application made by the assessee in this behalf give to him such certificate as may be appropriate. It is undoubtedly true that the deduction of TDS and depositing it with the Government revenue by the payee does not decide the final tax liability of the recipient of the income which would be the subject-matter of assessment of the return. If tax higher than what is actually due to be paid by the assessee to the Department is recovered in form of TDS, the assessee can always claim refund of such excess tax. However, sub-section (1) of section 197 has been enacted to give relief to the assessee, whose income may not justify deduction of tax at full rate or no deduction altogether. Necessarily, therefore, the satisfaction of the Assessing Officer at that stage about the total income of the recipient justifying reduced collection of tax at source would be prima facie in nature. Two things emerge from the said provisions; firstly, that such consideration cannot be devoid of exercise of sound discretionary powers and based on mere ipse dixit of the Assessing Officer. Secondly, that the power vests with Assessing Officer. No provision or rule is brought to our notice which would enable the higher authority to govern such discretion of the Assessing Officer statutorily vested in him under sub-section (1) of section 197.—[OPJ Trading (P) Ltd. v. ITO (2018) 305 CTR 413 : 171 DTR 265 (Guj)]