Procedure for Obtaining a Lower TDS Deduction Certificate under the Income Tax Act (Section 197)

A taxpayer can apply for a Lower TDS Deduction Certificate under Section 197 of the Income Tax Act if they believe that their total income justifies a lower or nil rate of TDS deduction. The procedure is as follows:

Step-by-Step Process to Obtain Lower TDS Certificate

Step 1: Eligibility Check

✔ The applicant should be earning income where TDS is applicable (e.g., salary, interest, professional fees, rent, etc.).
✔ The applicant must justify that the TDS deduction at normal rates would result in excess tax deduction leading to a refund situation.

Step 2: Online Application on TRACES Portal

1. Login to TRACES (https://www.tdscpc.gov.in/) using the taxpayer’s PAN and password.
2. Go to “Statements / Forms” > “Request for Form 13 (Lower/Nil Deduction Certificate)”.
3. Fill in the details:
   • Personal details (PAN, Address, Contact Info, etc.)
   • Financial details (Income, Deductions, Tax Liability, etc.)
   • Nature of income for which lower TDS is requested
   • Justification for lower deduction (like previous year’s tax filings showing refund situations).
4. Attach supporting documents:
   • Computation of estimated total income and tax liability
   • Copies of previous years’ ITRs
   • Financial statements (if applicable)
   • Relevant agreements, contracts, or invoices
5. Submit the application online.

Step 3: Processing by the Assessing Officer (AO)

✔ The Assessing Officer (AO) reviews the application and may request additional documents.
✔ If satisfied, the AO will issue a Lower/Nil TDS Deduction Certificate (Form 13).
✔ The certificate specifies the validity period and applicable TDS rate (which could be lower than the standard rate).

Step 4: Submission to Deductor

✔ The taxpayer must provide the lower TDS certificate to the deductor (payer).
✔ The deductor will deduct TDS at the specified lower rate instead of the standard rate.

Key Points to Remember:

✔ Validity: The certificate is valid for a financial year or a specific period mentioned in the approval.
✔ Deadline: Apply at the beginning of the financial year to avoid excess TDS deductions.
✔ Form 15G/15H: For individuals with income below the taxable limit, Form 15G (for non-senior citizens) or 15H (for senior citizens) can be submitted instead of Form 13.

Companies allow their employees different types of leaves like Casual Levees, Earned Leaves, Medical Leave, Gazetted Holidays, etc. Generally, the employee is allowed to either avail of these leaves or carryforward to next year. Sometimes, the employee is also allowed to encash these unutilized leaves and can earn a salary against them.

If the employee is given some monetary benefit against his carry forwarded leave then it is called encashment of the leave.