Form 13 – Non-Deduction / Lower Deduction of TDS

Form 13 is an application form that taxpayers submit to the Assessing Officer of the Income Tax Department for a lower or nil TDS deduction. Some taxpayers' total tax liability is less than the amount of TDS deducted. In such cases, the deduction of TDS will leave the taxpayers with no liquidity. 

For non or lower TDS deduction, they can apply for Form 13 to the Income Tax department. After examining the assessee's income, the Assessing officer will issue a certificate for various types of income for non-dedication or lower TDS deduction.

What is Tax Deducted At Source (TDS)?

The person responsible for making the payment is entrusted with the responsibility of deducting the tax at specified rates either at the time of credit in the books or payment to the recipient, whichever is earlier, and only pays the balance amount to the recipient. This tax, deducted by the person making the payment, is called Tax Deducted at Source (TDS).

This ensures tax is collected in advance, checks tax evasion and also helps track the recipients' income. However, this scheme of deducting tax at source itself may create hardship for a few taxpayers who may not have a taxable income at all.

What is Form 13?

Form 13 under Section 197 is an application form filled out by any person or a company to request a lower or nil TDS deduction when their estimated total tax liability is less than the TDS amount deducted. This form is submitted to the Assessing Officer of the Income Tax department. When the Assessing Officer is satisfied that the assessee's income is justifiable for lower or nil TDS deduction, he issues a certificate specifying the rate of TDS to be deducted for certain types of payments, which are mentioned below in this article.

Causes for Nil/ Less Tax Liability Than TDS Deducted

• The taxpayer has incurred a loss for the current year
• The taxpayer has carried forward losses of previous years available for set off in the current year
• Taxpayer is eligible to claim certain exemptions or deductions during the year

The above could result in the taxpayer not having any taxable income at all for the year. While TDS rates are determined in general considering a larger income population as a whole and income category, it might lead to undue difficulties for certain taxpayers as above who would not have any taxable income yet tax gets deducted at source for them which they end up claiming as a refund. No doubt these taxpayers are eligible for interest on such refund, funds unnecessarily get blocked till the refund is received. 

Moreover, they have to go through the process of filing their return to claim it (in a case where it was not otherwise mandatory for them to file it under the law). Therefore, with an objective to remove this undue hardship on such taxpayers, income tax law provides for an option to obtain a certificate from the Assessing officer confirming either a lower rate of TDS compared to the rate specified under the law or an NIL rate of TDS, depending on facts and circumstances of each case based on the application made. Section 197 governs these provisions. In this article, we will discuss provisions for applying for a certificate for a lower deduction of TDS.

Eligibility for Making An Application Under Section 197

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

Types of Income Covered in Section 197

Timeline for Making the Application

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

Validity of an Application Made Under Section 197

Section 197 is issued for a particular financial year and stands valid from the date of issue and throughout the financial year unless cancelled by the assessing officer (TDS) before the expiry.

Procedure for Making the Application Under Section 197

• An application for nil/lower deduction of TDS using FORM 13 is required to be filed with the Assessing Officer(TDS) to seek permission. Such Form 13 can be filed either online or manually. Regions of Mumbai, Tamil Nadu and Karnataka have enabled online filing of Form 13 for faster processing of applications for the issue of certificates of lower/nil deduction of tax at source u/s 197(1) of Income Tax Act 1961
• Suggested that the taxpayers file complete and correct details required for processing the application in the first instance.
• If the application satisfies the AO, he will process the issue of the certificate;
• A copy of this certificate can be attached to the invoice given to the deductor, and he can use this to justify the lower tax deduction.

Online applications can be made by logging in to TRACES or by registering here for taxpayers in Karnataka. 

Steps to Apply for Form 13 Online

• Login to TRACES Portal: Go to the TRACES portal and log in using your credentials.
• Navigate to Form 13: Find the option to apply for Form 13 for lower or non-deduction of TDS.
• Fill in the Details: Enter all the necessary details, including your income estimates, tax liability calculations, and reasons for requesting lower or no TDS.
• Upload Supporting Documents: Attach relevant documents, such as financial statements, tax returns, and any other supporting evidence.
• Submit the Application: After filling in all the details and uploading documents, submit the application.
• Acknowledgement and Processing: An acknowledgement receipt will be generated. The Assessing Officer will review the application and may request additional information or clarification.
• Issuance of Certificate: If the AO is satisfied with the application, a certificate will be issued authorizing the payer to deduct tax at a lower rate or not at all.

Documents to be Submitted with Form 13

The following documents need to be submitted with Form 13:

• Signed Form 13
• Copies of return of income along with enclosures and acknowledgement for the previous 3 financial years
• Copies of assessment orders for the previous 3 financial years
• In case of the assessee having business or professional income, copies of financial statements along with audit reports if any for the previous 3 financial years
• Projected profit and loss account for the current financial year
• Computation of income statement for previous 3 financial years and estimated computation for the current financial year
• Copy of PAN card
• Tax Deduction Account Number of all parties responsible for paying you
• E-TDS return acknowledgement for the previous 2 financial years
• Estimated income during financial year
• Any other documents depending on the nature of the income
• TDS default earlier

Once the application is complete in all aspects and is submitted to the jurisdictional assessing officer (TDS), it shall be disposed of within 30 days from the end of the month in which it is received. The assessing Officer will review the documents/information submitted and may ask for further queries and documents before issuing the certificate or rejecting the application.

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