Lower Deduction Certificate
- Avoidance of Excessive TDS Deduction
- Improved Cash Flow
- Avoiding Refunds and Delays
- Optimized Tax Deductions
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Table of Content
- Lower Deduction Certificate (LDC) Overview:
- Benefits of Obtaining Section 197 Certificate:
- Eligibility Criteria for Obtaining Section 197 Certificate:
- Documents required for Getting Section 197 Certificate:
- Section 197 Certificate Compliance:
Lower Deduction Certificate (LDC) Overview:
- A taxpayer can apply for an LDC to lower the TDS rate deducted by the payer of income (such as an employer or contractor).
- To apply, you need to fill out the appropriate forms, such as Form 13, and submit it to the tax authorities for approval.
What is Section 197 under the Income Tax Act?
Section 197 of the Income Tax Act, 1961, in India deals with the “Certificate for lower or no deduction of tax at source”. This provision allows taxpayers to request the tax authorities for a certificate that enables them to receive a lower or nil rate of Tax Deducted at Source (TDS) on their income.
FAQs for Lower Deduction Certificate
A Section 197 Certificate is a certificate issued by the Income Tax Department that allows a taxpayer to receive lower or nil TDS (Tax Deducted at Source) on their income, based on their actual tax liability. It is useful for taxpayers whose income is expected to be below the taxable threshold or eligible for exemptions/deductions.
Taxpayers who are expecting to have a lower tax liability than the default TDS rates or whose income will be below the taxable limit after deductions and exemptions can apply for the certificate. This includes salaried individuals, freelancers, contractors, businesses, and senior citizens.
You need to fill out Form 13 (Application for Lower Deduction of Tax) and submit it to the Income Tax Department, either online or offline. You must provide details about your income, expected tax liability, deductions, and any relevant documents (like salary slips, income proofs, and PAN).
The essential documents include:
o Form 13 (Application form).
o Proof of income (salary slips, bank statements, etc.).
o Tax deduction proofs (deductions under 80C, 80D, etc.).
o PAN card and Aadhar card (if applicable).
o Previous year’s tax return (if applicable).
o Proof of tax paid (advance tax receipts or challans).
The Section 197 certificate is usually valid for the entire financial year or the specified period mentioned in the certificate. If your income or tax liability changes, you may need to reapply for a new certificate.
If your income exceeds the estimated income or your tax liability changes significantly, you must inform the Income Tax Officer (ITO) and apply for an updated certificate. Failing to do so may result in higher TDS deductions and penalties.
Yes, the certificate can be revoked if the taxpayer fails to comply with the terms, provides inaccurate information, or has unresolved tax arrears. If the taxpayer’s actual income exceeds the estimated income, the certificate may also be canceled.
Non-compliance can lead to:
o Revocation of the certificate, causing higher TDS deductions.
o Penalties for providing incorrect information or misrepresentation of income.
o Interest and fines for failing to pay the required taxes.
Yes, it is applicable to all types of income that are subject to TDS, including salary, business income, contract work, interest, and more. The certificate applies to each source of income where TDS is deducted.
No, if you have outstanding tax arrears, you may not be eligible for a Section 197 certificate. You need to clear any pending dues before applying for the certificate.
If TDS is deducted at a higher rate and you do not have a Section 197 certificate, you may need to apply for a refund of the excess TDS deducted at the end of the financial year. However, this process can be time-consuming.
Yes, businesses, contractors, and professionals can apply for a Section 197 certificate if they expect their total income to be lower than the taxable limit after exemptions and deductions. The certificate ensures that the appropriate amount of TDS is deducted on business-related payments.
If you have multiple sources of income (e.g., salary, business income, interest), you can apply for a Section 197 certificate for all sources of income. The certificate will ensure that the correct TDS rate is applied to each income source based on your total tax liability.
You can check the status of your application through the Income Tax e-Filing portal or by contacting the Income Tax Office where you submitted your Form 13. You may receive an email or SMS notification when your certificate is issued.
Yes, you can use the same Section 197 certificate for multiple sources of income, including salary and interest income, as long as the total estimated income justifies a lower or nil TDS rate.
Related Business Registrations
In addition to registration or incorporation, a business may require other registrations depending on the business activity undertaken. Talk to an Advisor to find out registrations your business may require post registration.
