Tax deducted at source (TDS) can be a hassle for taxpayers, especially those suffering from excess TDS deductions. Sometimes TDS deducts from the taxpayer’s income more than they are liable to pay to Income tax authorities. Overpayment of taxes can be a nightmare for taxpayers.
However, Form 13 of Section 197 of the Income Tax Act made it easy for taxpayers to get the certificate for non/lower deduction of TDS.
Overview
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:
- 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.
What is Section 197A?
ny individual, including corporations, can apply for Section 197. However, for specific income categories, resident individuals or non-corporate entities can also submit a self-declaration using specified forms (Form 15G/Form 15H) to exempt TDS deduction.
What is Form 13 Under Section 197?
Form 13, under section 197, is a document that allows you to claim lower or non-deduction of tax at source (TDS) from your income. If you have a valid reason to believe that your tax liability for the year is lower than the TDS deducted by your payer, you can apply for Form 13 to the income tax officer. The Income Tax department will issue a certificate specifying the rate of TDS applicable to you, which you can submit to your payer. This way, you can avoid excess tax deductions and save yourself from the hassle of claiming a refund later.
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
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
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.
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.
FAQs
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.
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.