In India, tax is deducted at source (TDS) on various payments such as interest, rent, professional fees, contracts, commission, etc. However, in many cases, the tax deducted exceeds the actual tax liability of the recipient, resulting in excess tax credits and delays in refund claims.

To address this, the Income Tax Act provides relief through a Lower Deduction Certificate (LDC), which allows income earners to receive income with nil or lower TDS deduction by applying under Section 197 of the Act.

As a leading tax advisory firm, we offer end-to-end services to individuals, NRIs, companies, and professionals seeking to obtain a Lower Deduction Certificate to ease their cash flow and tax compliance burden.

Understanding the Significance of Form 13

Form 13 is the prescribed form that taxpayers need to file with the Income Tax Department to obtain a certificate for lower or nil deduction of TDS. This certificate can significantly help in:

• Avoiding excess TDS deduction
• Improving liquidity and working capital
• Reducing dependency on refunds
• Simplifying the tax compliance process

How to Apply for a Lower Tax Deduction Certificate

The process to apply for a Lower Deduction Certificate is done online through the TRACES portal or income tax e-filing portal. The steps include:

1. Login to the e-Filing Portal using PAN credentials.
2. Navigate to “e-File > Income Tax Forms > File Income Tax Forms”.
3. Select “Form 13 – Application for Nil/Lower Deduction of Tax at Source”.
4. Fill in the required information related to income, tax computation, and details of deductors.
5. Upload supporting documents.
6. Submit the form electronically using DSC or EVC.

Documents Required with Form 13

Here is a list of key documents and details generally required:
• Copy of PAN card
• Previous 3 years’ Income Tax Returns
• Computation of total income for the current financial year
• Details of estimated income, expenses, and tax liability
• Details of deductors and nature of payments
• TDS statements/Form 26AS
• Financial statements (Profit & Loss A/c, Balance Sheet)
• Any specific contracts or agreements, if applicable

Eligibility for Making an Application Under Section 197

You may be eligible to apply under Section 197 if: • You anticipate lower tax liability than the applicable TDS rates.
• You are an NRI or foreign company facing high TDS deductions.
• Your income is exempt under tax treaty or local laws.
• You are a startup or small business with thin margins and significant TDS.
• You have carried forward losses, deductions, or exemptions reducing taxable income.

Timeline for Making the Application

It is advisable to make the application at the beginning of the financial year, as the process may take 2 to 6 weeks depending on the jurisdiction and completeness of documents. Early filing ensures you avoid unnecessary TDS from the start of the year.

Validity of an Application Made Under Section 197

Once approved, the Lower Deduction Certificate is typically valid for the entire financial year, unless withdrawn or canceled by the Assessing Officer. It is specific to the deductor(s) and nature of income mentioned in the application.

To Whom is the Lower TDS Certificate Issued?

The certificate is issued in the name of the deductor or payer (such as banks, companies, or institutions making payments to you). You will need to provide the certificate to the deductor, who will then apply the lower or nil TDS rate as per the order.

FAQs on Lower Deduction Certificate (Section 197 – Form 13)