Under the Income-tax act, 1961, It has been defined that the receiver of service deducts the TDS at the time of credit or payment like 194J (Professional Service) or 194C (Contractor) or 192 (Salary).
The concept with Example:-
For Example, Mr. A is taking professional Service from Mr. B of Rs.3,00,000. In this case, Mr. A shall deduct the TDS @ 10% under section 194J and paid the net amount to Mr. B and after that Mr. B can take the credit of such TDS from his total tax liability. That’s how it works but the problem arises on the point when Mr. B’s total liability is Nil. So this article is all about to address this issue.
Mr. B does not require to pay the tax due to any of the following reasons:
- He has incurred the loss during the relevant financial year.
- He has any carried forward loss of last year which can be utilized in the current financial year or
- He is eligible for certain exemptions or deductions
So, if Mr. B’s situation falls any of the above categories and TDS has been deducted against any payment to be made to him then it will block his capital and he has to go for the whole process for filing of return and claiming a refund.
In this case, the income tax department has provided an option to the tax-payer in which he can obtain a certificate from his Assessing officer in which the AO permits for the lower rate of deduction of TDS as compared to the normal rate of tax or direct no deduction of TDS. It all depends upon the request of the assessee and other facts and conditions which have been presented by the assessee before his AO.
The details of the options are provided under section 197 of the Income-tax Act, 1961. Now, we will discuss this certificate.
The provision of section 197 can be applied when the assessee is having the receipts in which the TDS would be deducted in any of the following sections:
- Salary (Section 192)
- Interest on securities (Section 193)
- The dividend (Section 194)
- Interest other than interest on securities (Section 194A)
- Contract Income (Section 194 C)
- Insurance commission (Section 194 D)
- Commission/remuneration/prize on lottery tickets (Section 194 G)
- Commission or Brokerage (Section 194 H)
- Rent Income (Section 194 I)
- Professional Income (Section 194 J)
- Compensation on acquisition of immovable property (Section 194 LA)
- Income in respect of units of investment fund (Section 194 LBB)
- Income in respect of investment in securitization trust (Section 194 LBC)
- The income of non-residents (Section 195)
Eligibility for making the application in form 13:
Application in this form can be made by any taxpayer who has a receipt of income from the above-mentioned sections discussed attracting TDS. However, the justification for Nil/ lower deduction should be there based on the Estimated final liability.
The time limit within which the application to be made by Assessee
There is no time limit has been defined under the income tax act, within which assessee should give an application under section 197 of the act. Although if the assesse is having a regular receipt, under which TDS would be deducted in any of the above-specified sections then it is advisable for the assesse to file an application at the beginning of the financial year.
Procedure to be followed to obtain such certificate:
File Application form in form 13:
The assessee shall file the application in form 13 to obtain the certificate of a lower rate of deduction or nil rate of deduction of TDS. Form 13 can be filed manually or online. If the assessee wants to apply the certificate online then he can file the application through TRACES Site.
This form is very important because it is a prescribed form as described in law against which the request can be made, hence it is suggested for the assessee, who wants to apply for it, to fill all and correct details in the particulars as specified in the form.
The next part rests with AO that means if the AO is satisfied with the conditions of the assessee and form is complete all aspects and correct then the AO shall process for the issue of the certificate.
Once the certificate has been issued, then it is the responsibility of the assessee to give the copy of certificate to all the deductor so that they can deduct at lower deduction or nil deduction of TDS from the invoice amount.
The validity of the certificate
Once the certificate has been issued by the AO, then it shall be valid for the rest of the financial year. In simple words, the application can be made and certificate can be issued for a particular financial year and next year, assesse has to follow the same process.
Documents to be submitted to AO along with form13
- As we already discussed above, one Signed copy of the application in Form 13.
- Copy of last 3 financial year Income tax return copy.
- Assessment order copy received in the last 3 financial years if any.
- If the assessee is having a business or professional income then the annual report of the last 3 financial year which includes audit reports.
- Projected financial statements for the current financial year.
- Income computation of the last 3 financial years and estimated income computation of the current financial year.
- PAN Card Copy.
- TAN number of all those parties from whom payment may be received to him.
- TDS Acknowledgement copy of TDS returns for the last 2 years.
- Any other documents related to such a source of income.
Once the application has been received to AO, then it’s the responsibility of the AO to review and disposed the application within 30 days from the end of the month in which the application has been received.
So, the process is very simple, you just have to attach the above-specified forms in the application to your AO and the AO has to give the certificate within 30 days. After that, you will have to provide a copy of this certificate to all the buyers so that he can make the payment with lower deduction or no deduction of income tax. Also, the same process shall also be followed in case of TCS under section 206C(9) of the income tax Act, 1961.