Section 197 And 197A Of The Income-Tax Act

If you are a supplier of some services and your recipient is deducting some amount from your payment in the name of TDS and you want to understand this then this article will help you a lot. In this article, we will discuss, What is TDS and how the whole process works and whether there is any way by which your TDS would not be deducted and many other related matters. I have made this article in the form of the FAQ. So let’s Begin 

Section 197 And 197A

What is TDS?

TDS means Tax deducted at source. There are many people even in your friend circle who earns a lot of income but did not pay the correct amount of tax to the government. The government has already known this fact. So, in the Income-tax Act, the lawmakers have specified some services under which a person provides such services then the recipient shall deduct some prescribed amount as mentioned in the income tax act and deposit it to the government within 7 days from the end of the month in which such amount was deducted. The recipient would pay the rest of the amount to your account. Also, there is no need to worry about such a deducted amount because of the same amount, you can claim in your income tax return. So, by doing this, the government knew about the whole transaction. Such deducted amount is called Tax deducted at source or TDS. In other words, Tax Deducted at Source is a process under which the recipient of some specific services as mentioned in the Income-tax act and who is liable to pay salaries, commissions, interest on investments are bound to deduct a certain percentage from the gross value of the services, before making such payments to the payee. This percentage of income that is deducted is called Tax Deducted at Source. Let me explain it with the example:

Mr. Nikhil is providing some professional services to AKT Associates for a consideration of Rs.50 Lakhs in December 2019. In this situation, Mr. Nikhil is a service provider and AKT Associates is a service recipient. So, In the month of December 2019, it is the duty of the recipient that they should deduct the TDS @ 10% under section 194J on Rs.50 Lakhs and paid the rest of the amount i.e. Rs.45 Lakhs to Mr. Nikhil and deposit Rs.5 Lakhs within 7 days from the end of the month in which TDS was deducted i.e. 7th January 2020 to the government Account.

In this case, At the time of filing of the return, Mr. Nikhil can claim the amount of Rs.5 Lakhs and the same amount shall be reduced from his total liability.

Hence the process of TDS is being introduced by the Income Tax department, to ensure that tax evasion is curbed. This is like an advance tax that the taxpayer is paying to the government.

Let’s summarise:

  • TDS is deducted on a prescribed percentage as per the nature of service which ranges from 1% to 30% and such deducted amount will be shown in Form 26AS.
  • Do not consider it as a burden because suppose if the TDS would not be deducted from your income then your advance tax liability would be of higher amount but know the advance tax liability is being calculated total tax liability minus TDS. Hence actually TDS could ease out the financial burden right at the time of filing income tax.
  • However, the problem arises for those persons whose income does not even fall in the taxable bracket or others whose tax liability could be less than the TDS amount. They also did not require to file the Income-tax return but for claiming the refund amount, they will have to file the return.
  • However, this will block their capital for some period until the refund has been granted to them. So, this article will help that assessee who is falling in the above-mentioned categories i.e. where there is no tax liability at all or where the tax liability is less than the TDS, the Income Tax Law gives an option under Section 197 of the Act where the assessee can obtain a certificate from the Assessing Officer (AO) for either a Nil or a low rate of TDS by way of an application. Let’s understand it in detail.

How to apply for such an application under section 197?

As we already discussed above that Section 197 of the Income Tax Act provides an option to the person whose TDS has been deducted or to be deducted, can apply for the NIL TDS or less rate of TDS. To apply for the same, they have to use form 13 and after filing it should be submitted to his assessing officer.

Whether any person can apply for the certificate under section 197.

The service provider whose services have been listed in the income tax act shall be eligible for such an application.

Note: TDS has not deducted on goods hence there is no question for claiming the relief for those people who are engaged in goods.

The section list has been given below in which the person, having taxable income, can apply under Section 197:

Any individual earning income as specified in Section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, Section 194-I, 194J, 194LA, 194LBB, 194LBC, 195 of the Income Tax Act such as income by way of salary, insurance commission, dividends, rent, etc. can make an application for TDS exemption/lower rate.

Yes, you heard it right, even under section 192, you can apply for the certificate. Section 192 is used for TDS deduction under salary. In simple words, by giving the certificate under section 197, your employer did not deduct the TDS from your salary.

Now, the main question arises, how to apply for the Nil TDS or lower TDS certificate. In the following I have bifurcated the whole process into the simple steps:

1. To avail lower/No TDS, the taxpayer needs to file an application in Form 13 with the Income Tax authority to his Assessing Officer. Following are the details which required to be furnished in this Form 13:

  • Name and PAN of the assessee/taxpayer
  • Giving details of the Reason for claiming the certificate 
  • Mention the estimated tax liability for determining the eligibility to claim such certificate as per the existing income tax slabs
  • The details of payment of tax for the last three years
  • Details of the advanced tax paid like Challan serial number or BSR code
  • Amount deducted/collected as TDS or TCS for the current assessment year

Income Tax Return filing

2. The application is disposed of by the assessing officer within 30 days.

3. Where the assessing officer has satisfied with the details furnished by you, the assessing officer shall issue a certificate with which you can attach to the tax invoice to justify his claim for a lower tax deduction.

Following is the detail which is to be validated by the deductor in the certificate issued by the Assessing Officer.

The deductor needs to validate the following details in the certificate, to be able to process the assessee’s request for Low/No TDS:

  • PAN of the deductee as it is on the certificate
  • Certificate number
  • The validity of such certificate with the relevant financial year
  • Validate the threshold limit on the certificate
  • Upon validation, the Assessing officer shall raise the Flag A in the statement for issuing certificate u/s 197 and Flag B for a certificate under section 197A.

It is to be noted that once the certificate has been issued for that particular financial year from the date of issue then it would be ceased to exist only in the case where the assessing officer canceled the same.

Also, it is advisable for you to apply for the TDS relaxation at the beginning of the financial year although there is no due date for making the application under section 197.

Online TDS Return Filing

Section 197A

Section 197A specifies that for any individual, not being a firm or a company, to apply for an exemption of TDS deduction on his/her income from the interest on deposits with the scheduled banks in India if such income is below the taxable limit as per the current income tax slabs.

Mostly it is seen that the person whose earning is only from the bank deposits need this certificate because they could not have any other income. As per section 80TTA, an individual earning the interest income for more than Rs.10,000 and Rs.50,000 for senior citizens from saving bank account shall be required for this form.

Forms 15G and H

For the above-specified person, as per Section 197A, those individuals whose age is below 60 years can submit a declaration utilizing Form 15G and Where the individuals are having the age of 60 years or more (senior citizens) submit using Form 15H.  Also, a declaration is required to be submitted from the exemption of TDS on their interest income. These forms can also be used for the submission of the request for TDS exemption on withdrawal of EPF, Insurance commission earned rental income and income from corporate bonds and post office deposits.

I hope this article has explained to you everything that you need to know. Still, if you have any doubts about this issue, then you can ask us on WhatsApp or Email. We will be happy to assist you.

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