TDS Exemption Certificate
TDS Exemption Certificate
Many assessees whose income is not chargeable to tax often end up with their funds getting blocked in form of TDS with the government. The funds are released only after processing of filed income tax return which usually takes 3-4 months at the least. The purpose of making the provision of TDS is that, it enables the government to collect tax as and when income arises. It also enables the government to track the income of various assessees to check whether they disclose all their income in their respective returns.
The Income Tax Act provides that in case of certain types of payments, where the Assessing Officer is satisfied that the total income of the recipient justifies deduction of tax at a lower rate or no deduction of tax, the Assessing Officer shall, on application made by the assessee, furnish such certificate as may be appropriate.
The assessee must provide a copy of the certificate to the payer along with the invoice. The payer must comply with the certificate and deduct tax at such lower rate mentioned in the certificate or should not deduct tax, as the case may be. 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.
Application for Certificate under section 197
The application to obtain certificate for lower deduction or non-deduction of TDS is made by submitting Form-13. Some of the cases where an assessee may apply for such a certificate are: -
- The assessee has huge amount of brought forward losses.
- The income of the assessee is not taxable under the concept of mutuality.
- The assessee in incurring huge losses and is not likely to be liable to pay tax in the near future.
- The assessee is a charitable/ religious trust registered under section 12AA and is not likely to come under the purview of tax.
- The assessee is claiming deduction under section 10 and net taxable income is likely to be below maximum amount not chargeable to tax
- The assessee is claiming deduction under section 35 and the net taxable income is likely to be below maximum amount not chargeable to tax, etc.
The above list is not exhaustive. The Assessing Officer has to dispose an application within 30 days from the end of the month in which application is made.
Cases where certificate can be applied for
The deductee can apply for a certificate only for the purpose of receiving the following payments: -
- Section 192: Salary
- Section 193: Interest on securities
- Section 194: Dividends
- Section 194A: Interest other than interest on securities
- Section 194C: Contract charges
- Section 194D: Insurance commission
- Section 194G: Commission on sale of lottery tickets
- Section 194H: Commission or brokerage
- Section 194I: Rent on plant & machinery, building, etc.
- Section 194J: Professional charges
- Section 194LA: Compensation on acquisition of immovable property
- Section 194LBB: Income from units of investment funds
- Section 194LBC: Income from investment in securitization trust
- Section 194M: Payment of certain sums by individuals / HUFs
- Section 195: Certain payments to non-residents
Cases where certificate cannot be applied for
The certificate cannot be applied for if all the following conditions are satisfied: -
- The payee is not a company or firm
- The payee has duly furnished a statement in Form 15G or Form 15H, declaring that the total income will not exceed the maximum amount not chargeable to tax.
- The payment relates to :
Section 192A: Payment of Accumulated Balance Due to an employee
Section 193: Interest on Securities
Section 194A: Dividends
Section 194D: Insurance commission
Section 194DA: Payment under Life Insurance policy
Section 194I: Rent on plant & machinery, building etc.
How to apply TDS Exemption Certificate
- What is TDS Exemption Certificate
- Cases where certificate can be applied for
- Procedure for application
- Documents to Submitted with Form 13
- Sample Form 13
What’s Included
- Filing of Application in Form 13
- Consultation and computation of applicable TDS rate
- Lower Deduction/ Exemption Certificate under section 197
Documents Required
- PAN Card
- Details of customers
- Projected income from customers
- Assessment Orders for the last 4 assessment years, if any
- Financial Statements for preceding 3 financial years
- Projected Financial Statements for current financial year
- Income Tax Return for preceding 3 financial years
- Details of TDS (Form 26AS) for the last 3 financial years.
- Details of tax deducted by the assessee in the last 3 financial years.
- Registration Certificate in case of entities covered under section 12AA
- Registration Certificate in case of entities claiming deduction under section 10 or section 35.
FAQ's
Where the payee (receiver of income) is not likely to come under the purview of income tax and has valid evidence to support the same, he/ she may consider applying for a certificate for lower deduction or no-deduction of TDS. Such certificate can only be applied for if the payee does not have the option to submit Form 15G/ 15H to the payer. Some typical cases where certificate can be applied for would be, a company payee incurring huge losses or a charitable trust earning income exempt under section 11 and 12.
Yes. Since you do not have the option to submit Form 15G/ 15H (which is not applicable for contract charges), you may opt to apply for certificate of non-deduction/ short-deduction of TDS. You are required to provide a copy of such certificate along with your bill to the payer.
No. Since you are an individual receiving interest income, you are not eligible for certificate under section 197. To avoid deduction of TDS, you can file a declaration in Form 15G (Form 15H in case of senior citizens) declaring that your total income does not exceed the maximum amount not chargeable to tax. On receipt of the said declaration the bank will not deduct TDS on interest paid to you.
The application for certificate under section 197 can be made in Form 13. The applicant is required to provide a variety of information in this form, such as details of income for the last 3 years, estimated income for the current year, assessment orders of the last 4 assessment years etc. On receipt of the application, the Assessing Officer is required to dispose the same within 30 days from the end of the month in which application is made.
The Income Tax Act does not provide a time limit for making an application in Form 13. Therefore, such an application can be made at any time. However, it is advisable to make such application at the beginning of the financial year to get full benefit of the certificate.
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