The Concept of Low Deduction Certificates

Business / May 25, 2022

Who doesn't like to pay tax at low rate, some people think that it is a far-sighted idea but in reality common people can take advantage of low rate of tax. It sounds very complicated but its process is easy but to understand the law and key points you have to take the help of universal teacher "Books" or you can consult your financial advisor on the subject.

Let’s understand ‘what is the term LDC is’ and ‘how this system works for the general welfare’.

Lower Deduction Certificate section 197 of TDS is a hidden gem section of TDS. So many benefits are affiliated with this term, for example, A company who are not PE in India, NRI individual who sale Indian Property and Assessee who going through low N/P or losses. The assessee can avail the Low deduction Tax rate by going through a simple procedure by filing Form 13 to AO.

The deductee can apply for a certificate only for the purpose of receiving the following payments: -Section 192: Salary

  1. Section 193: Interest on securities
  2. Section 194: Dividends
  3. Section 194A: Interest other than interest on securities
  4. Section 194C: Contract charges
  5. Section 194D: Insurance commission
  6. Section 194G: Commission on sale of lottery tickets
  7. Section 194H: Commission or brokerage
  8. Section 194I: Rent on plant & machinery, building, etc.
  9. Section 194J: Professional charges
  10. Section 194LA: Compensation on acquisition of immovable property
  11. Section 194LBB: Income from units of investment funds
  12. Section 194LBC: Income from investment in securitization trust
  13. Section 194M: Payment of certain sums by individuals / HUFs
  14. Section 195: Certain payments to non-residents
  15. The payee is not a company or firm
  16. 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 certificate cannot be applied for if all the following conditions are satisfied: -

  • 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

Procedure for Filing Form 13
An application for Nil/ Lower deduction of TDS under Section 197 is required to be made by the taxpayer to the income tax officer in Form 13. Various details are required to be furnished by the taxpayer in this Form 13, some of which include:-

  • Name and PAN No.
  • Details regarding the purpose for which the payment is being received
  • Details of income of the last 3 years and the projected current year’s income
  • Details of payment of tax of the last 3 years
  • Details of tax deducted/ paid for the current year
  • Estimated Tax Liability for the current year
  • Email ID
  • Mobile Number

The Lower/ Nil TDS Certificate would only be issued provided the Income Tax Officer is satisfied that the income of the taxpayer justifies lower deduction of TDS.

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