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Section 197 – Income Tax Exemption Certificate

Last Update Date : April 04, 2019
Estimated Read Time: 4 min

Section 197 / 197A of the Income Tax Act, 1961 is a provision which allows for a lower rate of tax to be deducted at source / no tax to be deducted at source, i.e. the lower rate of TDS / no TDS. In this article, we will be discussing Section 197 and the procedure of claiming low or no TDS.

section 197

What is TDS?

Tax deducted at source is a system introduced by the Income Tax Department, where the person making payments like salaries, professional fees, commissions, interest on investments, payment of rent, etc. deducts a certain percentage as a tax on such income before making these payments to the receiver.

  • A person who is making the payment is responsible for deducting the tax and depositing the same with the government. He is called Deductor.
  • A person who receives the payment after tax deduction is called Deductee.
  • TDS ranges from 1%-30%.
  • Form 26AS is a consolidated statement for a particular financial year that shows TDS from all your sources of income.

What are Section 197 and Section 197A?

At the time of filing his returns and calculating the tax liability, the tax payer may realise that his tax liability is considerably less than what he has paid. In such events, he can claim the refund of the excess tax paid/deducted at source during a financial year. But in cases where the taxpayer feels that his final tax liability for the financial year is going to be nil or less than the TDS rate applicable on a particular income, section 197 / 197A allows him to apply for a lower rate of TDS / no TDS. This application is to be submitted to the assessing officer in the prescribed form 13. If he does not apply for the Lower / Nil TDS certificate, he can still claim a TDS refund by filing his annual return. Usually, it takes 1-6 months after he files the return. This can block his significant income with the tax department. TDS needs to be deducted even if the assessee is falling below the minimum tax bracket. In such cases, he can avoid unnecessary TDS by filing Form 15G / Form 15H to the banks or by submitting Lower / Nil TDS certificate to the deductor. The income tax department processes the refund along with an interest of 6% in some cases. Most of the refunds are made in electronic form, directly to the bank account of the Assessee.

Procedure for Claiming Lower TDS or No TDS

TDS exemption is applicable when

  • If the tax is deducted under section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194LA & 195 and if Assessee feels that no or lower tax deductions of TDS should be there then the following procedure should be undertaken.
  1. An application for nil/lower deduction of TDS using the FORM 13 is required to be filed with the Income Tax Assessing Officer for seeking permission.
  2. Assessing officer disposes off the applications within a frame of 30 days.
  3. The tax payers are advised to file complete and correct details required for processing the application in the first instance.
  4. If the AO is satisfied then, will process the issuance of the certificate.
  5. The 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.
  6. This certificate is valid until the AO cancels it.
  • TDS exemption / lower TDS is not applicable under sections 194B, 194BB, 194DA, 194E, 194IA.

What Happens After Deductor Receives Certificate?

On Receipt of the Certificate the Deductor

  • Validates the PAN details
  • Checks validity for current financial year
  • Correct certificate number
  • Raises flag A in a statement for a certificate u/s 197 and flag B for certificate u/s 197A

Form 13

An application for lower TDS/No TDS u/s 197 is required to be made by the tax payer the income tax assessing officer.
The form used for this application is FORM 13. Various details are required to be furnished by the tax payer like

  • Name and PAN
  • Details regarding the purpose for which the refund is being received
  • Details of income of last three years and the projected current year’s income
  • Details of payment of tax of last three years
  • Details of tax deducted/paid for the current year

Form 15G and Form 15H

Banks deduct TDS in cases where the interest income of the individual on a fixed deposit is more than Rs 10,000 in a year. The bank includes deposits held in all its branches to calculate this limit. However, if your total income is below the taxable limit, you can submit form 15G or form 15H (in case of senior person) to the bank requesting them not to deduct TDS. Form 15G and Form 15H are self-declaration form furnished by the Assessee to his banker for nil deduction of TDS. These forms are valid for one financial year. Hence, one has to submit them every year for continuing the eligibility.

Eligibility for form 15G

  • A resident Indian individual or HUF below 60 years of age
  • Tax liability on total income is Nil
  • Total interest income for the year is less than the minimum exemption limit for that year.

Eligibility for form 15H

  • A resident Indian individual above 60 years of age
  • Tax liability on total income is Nil

The certificate issued under Section 197 is only valid for the AY mentioned in the certificate unless it is cancelled or the date mentioned on the certificate expires.

If you want to file your tax returns in a smooth and hassle-free manner, H&R Block India is the right place for you. Our dedicated team of tax experts will file your tax returns in an effective number.

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Chetan Chandak (B.Com, LLB)
Chetan is the Head of Tax Research at H&R Block (India) with an experience of more than a decade in tax advising. He is also a regular contributor for some of the leading news publications in India such as Economic Times, Financial Express and Money Control. Professionally, Chetan is fascinated by international taxation and expat-related tax research.

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