DEDUCTION OF INCOME TAX AT LOWER RATE OR ‘NIL’ RATE

[DR.MARIAPPAN GOVINDARAJAN]

Introduction

The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

TDS provisions

Section 197(1) provides that in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of-

• Section 192 – Salary;
• Section 193 – interest on securities;
• Section 194 – Dividends;
• Section 194A – Interest other than interest on securities;
• Section 194C – Payments to contractors and sub-contractors;
• Section 194D – Insurance Commission;
• Section 194G – Commission etc on the sale of lottery tickets;
• Section 194H – Commission or brokerage; 
• Section194-I – Rent;
• Section 194J – Fees for professional or technical services;
• Section 194K – Income in respect of units;
• Section 194LA – Payment of compensation on acquisition of certain immovable property;
• Section 194LBA – Certain income from units of a business trust;
• Section194LBB – Income in respect of units of investment fund;
• Section 194LBC - Income in respect of investment in securitisation trust;
• Section 194M – Payment of certain sums by certain individuals or Hindu Undivided Family;
• Section 194-O – Payment of certain sums by e-commerce operator to e-commerce participant;
• Section 194Q – Deduction of tax at source on payment of certain sum for purchase of goods;
• Section 195 – Other sums.

Reduced rate

If the  Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, the Assessing Officer shall, on an application made by the assessee in this behalf, given to him such certificate as may be appropriate.  An application by a person for grant of a certificate for the deduction of income-tax at any lower rates or no deduction of income-tax  shall be made in Form No. 13 electronically, -

1. under digital signature; or
2.  through electronic verification code.

Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

Form 13

This form can be used for the TDS and TCS at a lower rate.  The form is addressed to the jurisdictional Assessing Officer.  The particulars of the income of the Assessee and his personal details are to be furnished.  Further the following details are to be furnished-

• Assessment year;
• Liability under the Income Tax Act, 1961;

• Amount payable in respect of advance tax;
• Amount payable for self-assessment tax;
• Amount for which notice of demand under section 156 has been served but not paid;
• Amount payable as deductor or collector which had become due but not paid;

• Previous year to which the payments/receipts relate;
• Estimated total income of the previous year referred to in;
• Total tax including interest payable for the total income;
• Details of income claimed to be exempt and not included in the total income;
• Details of payment of advance-tax and tax deducted/collected, if any, for the previous year;
• Whether exemption under section 10, section 11 or section 12 is claimed (Yes/No) (If yes, registration/exemption certificate/approval, if any, issued by the Income-tax Authority is to be uploaded);
• Where return of income for any of the four previous years preceding to the previous year has not been filed, a computation of estimated total income of the previous year for which return of income has not been filed is to be uploaded;
• Where return of income for any of the four previous years has been filed in paper form, please upload the copy of such returns; and
• Declaration.

In addition to the above, Annexure - I and Annexure - II are to be filled in.  In Annexure I the particulars in respect of the income/sum for which the certificate is sought are to be furnished-

• TAN No. and PAN No. or Aadhaar No. of the deductor;
• Section under which tax is to be deducted;
• Estimated amount of income/sums to be received;
• Requested rate of deduction.

The following particulars are to be furnished in Annexure – II-

• Section under which tax at source is to be deducted;
• Estimated amount of income/ sum to be received;
• Requested rate of Deduction.

A note justifying the issue of certificate shall be uploaded along with the application.

Estimation of liability of tax

Rule 28AA (2) of the Rule provides that the existing and estimated liability shall be determined by the Assessing Officer after taking into consideration the following:

• tax payable on estimated income of the previous year relevant to the assessment year;
• tax payable on the assessed or returned or estimated income, as the case may be, of last 4 previous years;
• existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957.
• advance tax payment tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making application.

Issuing of certificate

Rule 28AA (1) of the Rule provides that where the Assessing Officer, on an application made by a person is satisfied that existing and estimated tax liability of a person justifies the deduction of tax at lower rate or no deduction of tax, as the case may be, the Assessing Officer shall issue a certificate for deduction of tax at such lower rate or no deduction of tax.

The certificate for deduction of tax at any lower rates or no deduction of tax shall be issued direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate.

Validity of certificate

The certificate shall be valid for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.  The certificates shall be valid only with regard to the person responsible for deducting the tax and named therein and certificate shall be valid with regard to the person who made an application for issue of such certificate.

Certificate for Trusts

Rule 28AB provides the procedure for the issuing of certificate in respect of trusts on the income received from the properties of the trust, scientific research association, news agency, association or institution, fund or trust or university or other educational institution or any hospital or other medical institution or trade union. A person may make an application to the Assessing Officer for the grant of a certificate under sub-section (1) of section 197 authorizing him to receive incomes without deduction of tax at source.

The following are the conditions are to be fulfilled for getting a certificate under this Rule-

• The applicant is for the time being approved for the purpose of exemption from income-tax.

• The person concerned has furnished the returns of income for all assessment years for which such returns became due on or before the date on which the application is made.

The Assessing Officer may issue a certificate authorizing payment of incomes without deduction of tax at source if he is satisfied that all the conditions are fulfilled and the issue of any such certificate will not be prejudicial to the interests of revenue.

The certificate shall be valid for the financial year specified therein unless it is cancelled by the Assessing Officer at any time before the expiry of the said financial year.   An application for a fresh certificate may be made, if the assessee so desires, after the expiry of the period of validity of the earlier certificate.