Form 13 – Non-Deduction / Lower Deduction of TDS

Considering taxpayers' tendency to adopt tax evasion measures, Income tax provisions provide for tax deduction at source/tax collection at source. Tax rates for such deductions are provided under Section 192, Section 194, and Section 195(non-residents).

Introduction

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 ensures tax is collected in advance, checks tax evasion and also helps track the income of recipients in the future. 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. Such scenarios could arise where:

Budget 2025 update

The Union Budget 2025 proposed the rationalisation of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) to ease compliance challenges for taxpayers especially for middle-income earners. The government has raised the threshold limits across various TDS sections, aiming to simplify the tax process. The proposed changes are as follows

Section	Present	Proposed
193 - Interest on securities	NIL	10,000
194A - Interest other than Interest on securities	(i) 50,000/- for senior citizen; (ii) 40,000/- in case of others when payer is bank, cooperative society and post office (iii) 5,000/- in other cases	(i) 1,00,000/- for senior citizen (ii) 50,000/- in case of others when payer is bank, cooperative society and post office (iii) 10,000/- in other cases
194 – Dividend, for an individual shareholder	5,000	10,000
194K - Income in respect of units of a mutual fund	5,000	10,000
194B - Winnings from lottery, crossword puzzle Etc. & 194BB - Winnings from horse race	Aggregate of amounts exceeding 10,000/- during the financial year	10,000/- in respect of a single transaction
194D - Insurance commission	15,000	20,000
194G - Income by way of commission, prize etc. on lottery tickets	15,000	20,000
194H - Commission or brokerage	15,000	20,000
194-I - Rent	2,40,000 (in a financial year)	6,00,000 (in a financial year)
194J - Fee for professional or technical services	30,000	50,000
194LA - Income by way of enhanced compensation	2,50,000	5,00,000
206C(1G) – Remittance under LRS and overseas tour program package	7,00,000	10,00,000

Note: 

• The Tax Collected at Source (TCS) will be removed on remittances made for educational purposes when these remittances are financed through loans from specified financial institutions (Section 80E).
• The Tax Collected at Source (TCS) on the purchase of goods will be removed, effective from April 1, 2025.
• The higher TDS rate will only apply in cases where taxpayers do not provide PAN.

• 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.

Income Covered Under Section 197

Section 197 application can be made by the recipient of income in case of the following category of receipts where TDS is required to be made under the following Sections:

• Section 192 – Salary income
• Section 193 – Interest on securities
• Section 194 – Dividends
• Section 194A – Interest other than interest on securities
• Section 194C – Contractors income
• Section 194D – Insurance commission
• Section 194G – Commission/remuneration/prize on lottery tickets
• Section 194H – Commission or brokerage
• Section 194-I – Rent
• Section 194K - Income from units
• Section 194J – Fee for Professional or technical services
• Section 194LA – Compensation on acquisition of immovable property
• Section 194LBB – Income in respect of units of investment fund
• Section 194LBC – Income in respect of investment in securitization trust
• Section 194M - Payment of sum by certain individuals or HUFs
• Section 194O - Payment of certain sums by E-commerce operator to E-commerce participants.
• Section 195 – Income of non-residents

Eligibility for Making an Application Under Section 197

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

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.

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.

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.

Documents 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.

Sample Form 13

Section 197A

While a Section 197 application can be made by any person, including corporates, in case of a certain specified income category, resident individuals/any person not being firm or company, as the case may be, may also submit a self-declaration in specified forms (Form 15G/Form 15H) for non-deduction of TDS.

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