Lower TDS Certificate Under Section 197 (Form 13)

Short answer: A certificate under Section 197 of the Income-tax Act, 1961, allows a taxpayer to receive specific incomes at a lower rate of Tax Deducted at Source (TDS) or with no TDS at all. You can obtain this certificate by making an online application in Form 13 to the Assessing Officer. It is ideal for individuals and businesses whose estimated final tax liability is significantly lower than the tax that would be deducted at the standard rates, thereby improving cash flow.

What is a Section 197 certificate?

A Section 197 certificate is an official document issued by an Income Tax Assessing Officer (AO) that authorises a specific payer (deductor) to deduct tax from your payments at a reduced rate or at a nil rate. Normally, payments like professional fees, rent, commissions, and contract payments are subject to TDS at prescribed rates. If your actual tax liability for the year is expected to be lower than this TDS amount, you can apply for this certificate to prevent excessive tax deduction and avoid waiting for a refund.

Who can apply for a lower TDS certificate?

Any person receiving income that is subject to TDS can apply for a lower or nil deduction certificate. This includes resident individuals, HUFs, partnership firms, companies, and even Non-Resident Indians (NRIs). The primary condition is that you must be able to justify to the AO that your estimated total income for the financial year warrants a lower tax deduction. Common scenarios include:

• Professionals and Businesses: If you have significant business expenses that reduce your net taxable income.
• Salaried Individuals: If you have large deductions (like a home loan) or have brought-forward losses.
• Rental Income: If you receive high rental income but have substantial expenses like municipal taxes and interest on a housing loan on the rented property. See our guide on tax on rental income.
• NRIs: Especially for TDS on property sales under Section 195, where TDS is deducted on the entire sale consideration.

How do you apply for Form 13 online?

The application for a lower TDS certificate must be filed electronically in Form 13 on the TRACES portal. Here is a step-by-step guide:

1. Login to TRACES: Log in to your account on the TRACES website (www.tdscpc.gov.in) as a taxpayer using your PAN.
2. Navigate to Form 13: Go to the 'Statements / Forms' tab and select 'Request for Form 13'.
3. Select Application Type: You will be prompted to choose 'Online Form'.
4. Fill in Details: The form requires you to provide details such as your residential status, the financial year, estimated total income for the year, and the total tax liability on that income.
5. Add Deductor Details: You must provide the TAN (Tax Deduction and Collection Account Number) of each deductor, the nature of income (e.g., professional fees, rent), and the estimated amount you expect to receive from them.
6. Upload Documents: You will be required to upload supporting documents to justify your claim.
7. Submit and Verify: Submit the form and verify it using Aadhaar OTP, a Digital Signature Certificate (DSC), or Electronic Verification Code (EVC).

After submission, the application is forwarded to your jurisdictional Assessing Officer for review.

Form 13 Application Checklist

To ensure your application is processed smoothly, use this checklist to gather all necessary information and documents before you begin.

Step	Action	Key Details & Documents
1	Prepare Income Projection	A detailed computation of your estimated total income and tax liability for the financial year.
2	Gather Financial Data	Audited/unaudited financial statements for the last 3 financial years.
3	Collect ITR Copies	Copies of Income Tax Return acknowledgements (ITR-V) for the last 3 assessment years.
4	List Deductors	A complete list of parties expected to make payments to you, along with their TANs and estimated payment amounts.
5	Compile Supporting Documents	Any relevant contracts, agreements, invoices, or rental agreements justifying the income.
6	Check PAN & Aadhaar	Ensure your PAN is active and linked with Aadhaar as per the Aadhaar-PAN linking guide.
7	Prepare for Verification	Keep your DSC ready or ensure your mobile is linked to Aadhaar for OTP verification.

How long is a Section 197 certificate valid?

A Section 197 certificate is valid only for the specific financial year for which it is issued. For instance, a certificate issued for FY 2025-26 will be valid from the date of issue until 31st March 2026. It is also specific to the deductors (and their TANs) and the income amounts mentioned in your application. You must apply for a new certificate for each financial year if your situation requires it.

What happens after the certificate is issued?

Once the Assessing Officer approves your application, the certificate is generated and made available on the TRACES portal. The Income Tax Department communicates the certificate details directly to your deductor(s) through the portal. However, it is your responsibility to provide a copy of the certificate to your deductor(s). The deductor must then validate the certificate's details on TRACES before applying the lower TDS rate mentioned in it. Without this validation, they are obligated to deduct tax at the normal rates.

Worked example

Anjali is a freelance digital marketer based in Bengaluru. For the Financial Year 2025-26, she projects a total professional income of ₹30,00,000 from three different clients.

• Without Section 197 Certificate: Her clients would deduct TDS at 10% under Section 194J.
  • Total TDS Deducted: 10% of ₹30,00,000 = ₹3,00,000.
• Anjali's Estimated Tax Liability: She projects her business expenses (software, advertising, co-working space) at ₹12,00,000.
  • Gross Total Income: ₹30,00,000 - ₹12,00,000 = ₹18,00,000.
  • Standard Deduction (New Regime): ₹75,000.
  • Taxable Income: ₹18,00,000 - ₹75,000 = ₹17,25,000.
  • Tax Liability (as per new regime slabs): Approximately ₹2,28,750 (plus cess).
• Application for Lower TDS: Anjali sees that her TDS of ₹3,00,000 would be much higher than her actual tax liability of ₹2,28,750. She files Form 13 with her income projections and expense details.
• Outcome: The Assessing Officer reviews her application and issues a Section 197 certificate directing her clients to deduct TDS at 7.5% instead of 10%.
  • New Total TDS Deducted: 7.5% of ₹30,00,000 = ₹2,25,000.

This certificate helps Anjali improve her in-hand cash flow during the year by ₹75,000 (₹3,00,000 - ₹2,25,000), which she can use as working capital, instead of waiting a year to claim it as a refund.

Common mistakes

1. Applying Too Late: Filing Form 13 late in the financial year is a common error. By then, a significant portion of income may have already been paid after full TDS deduction, defeating the purpose.
2. Inaccurate Projections: Providing unrealistic or unsubstantiated income and expense projections can lead to the rejection of your application.
3. Missing Deductor Details: The certificate is issued per TAN. If you forget to include a deductor in your application, you cannot use the certificate for payments from them.
4. Not Informing the Deductor: Simply obtaining the certificate is not enough. You must furnish it to your deductor, who needs to validate it on TRACES to apply the lower rate.
5. Forgetting to Track the Application: After filing, you must track the application status online and respond promptly to any queries raised by the Assessing Officer.

How SP & SC helps

Navigating the Form 13 application process requires careful financial projection and meticulous documentation. At SP & SC, our team of Chartered Accountants assists clients with the end-to-end process. We help you prepare accurate income and tax liability estimates, compile all necessary supporting documents, file the application on the TRACES portal, and regularly follow up with the Income Tax Department to address any queries and ensure the timely issuance of your certificate. We handle the complexities so you can focus on your business with improved cash flow. Explore our TDS compliance services for comprehensive support.

Frequently asked questions

H3: Can an NRI apply for a lower TDS certificate?

Yes, Non-Resident Indians (NRIs) can and frequently do apply for a Section 197 certificate. It is particularly useful for NRIs selling property in India, as TDS under Section 195 can be as high as 20% (plus surcharge and cess) on the entire sale price. A certificate can limit the TDS to the actual capital gains tax liability.

H3: What is the difference between Form 15G/15H and Form 13?

Form 15G/15H are self-declarations submitted by a resident individual to a payer (like a bank) to request non-deduction of TDS on interest income, provided their total income is below the basic exemption limit. Form 13, on the other hand, is a formal application made to the Assessing Officer for any income subject to TDS, seeking a certificate for a lower or nil rate. It applies even when total income is above the exemption limit.

H3: How long does it take to get a Section 197 certificate?

Rule 28 of the Income Tax Rules states that the AO should dispose of the application within 30 days from the end of the month in which the application is received. However, in practice, it can take anywhere from 2 to 4 weeks, depending on the AO's workload and the clarity of the information provided.

H3: Is the certificate issued for a specific TAN?

Yes, the Section 197 certificate is issued for specific deductors and is linked to their Tax Deduction and Collection Account Number (TAN). You must list all intended deductors in your Form 13 application for the certificate to be applicable to them.

H3: Can I apply for a nil deduction of TDS?

Yes, you can apply for a nil deduction certificate if you can demonstrate that your final tax liability for the financial year will be zero. This could be due to having brought-forward losses to set off against your income or having sufficient deductions to bring your taxable income to nil.

Get a fixed-fee quote

At SP & SC Legal, we understand that TDS can significantly impact your working capital. We can help you navigate the entire process of obtaining a lower TDS certificate, from financial projections to final issuance. Share your documents with us, and we will provide a written, fixed-fee quote for our services. Contact SP & SC or WhatsApp us at +91 90356 74566 to get started.