Lower TDS Deduction Certificate


Indian Income Tax Act provides for withholding of tax(TDS) on various type of payments like rent, professional fees, lottery winning, interest, property purchase consideration etc. Tax withholding provision is prevalent in most of the countries having taxation on income and is based on the principle that tax is paid when it is earned than when it is assessed. It also provides cashflow to the government throughout the year

Income Tax Act provides for deduction of tax at specified rate on gross payment without considering the whether the receiver is having actual taxable income. In case the deductee is having lower taxable income or has loss and hence the tax deducted is in excess, he has two option i.e 1. To claim the excess tds as refund at the time of filing return of income or 2. Apply for getting lower tds deduction Certificate which allows the deductor to deduct TDS at rate lower than prescribed rate or at NIL Rate. Advantage of going for lower TDS certificate is that funds doesn’t gets blocked with government.

In case of domestic deductees:

In case of payment to resident payees, the TDS provision under section 192 to 194N will be applicable. Different rate of deduction and different threshold is provided under various sections, for example TDS on rent is applicable at 10% if the rent is exceeded 2.40 lakh per annum for individual payee, TDS at 5% is applicable on commission, TDS at 10% is applicable professional charges etc. What if say the landlord to whom rent is paid has interest payable on loan taken for construction hence has no taxable income after deduction of such interest then instead of waiting for filing the return of income and waiting for income tax refund, he can apply for lower tds deduction certificate under section 197 of the income tax act, based on which person paying rent can deduct tax at NIL or lower than 10%.

Lower TDS certificate is given specific deductor with limit upto which it is applicable, hence it is deductor specific, not a blanket one applicable to any deductor.

In case of Non Resident Deductees

Section 195 of the Income tax is applicable for withholding of taxes from payment to Non Residents. Unlike in case of resident payees where there is threshold limit below which TDS is not applicable, there is no threshold applicable in case of payment to non residents, and also provisions of DTAA with the country in which non resident is resident will determine rate of tax. Here too the non resident receiver can apply for lower tds deduction certificate, and the deductor can deduct tds at such lower rate mentioned in the certificate.

Lower TDS Deduction certificate in case of Non Resident Indians selling Property owned by them in India.

Provisions of section 195 applies in case of resident person making payment to non resident toward purchase of property in India. TDS is applicable at 20% plus surcharge and Cess on the sale price of such property which the property buyer is required to deduct from the selling price payable to the buyer. In case application can be made by the seller to the Income tax officer for lower TDS deduction certificate alongwith following documents:

  • Agreement to sell with buyer
  • TAN Numbers of the Buyers
  • Computation of capital gain
  • Supporting towards cost of the property
  • Three year income Tax return copy of Non Resident seller, or Affidavit that his/her income was below taxable limit
  • 6. Evidence in support of being non resident for preceding 3 years ( Passport Immigration stamping)

In case of joint owners selling property two separate applications need to be made and department has a internal guildline to process the application within 30 days. Internally the application is processed by the officer and sent for Additonal or Joint Commissioners approval, in case of rate of deduction being lessthan 3% same requires to be approved by the commissioner. Any proposed investment by the seller out of sale consideration which is entitled for deduction from taxable capital gains is not considered by the department as evidence for same can’t be provided at the time of making application.

Tax authorities have now made it easier for Indian tax payers to determine their refund status. You can simply visit the NSDL-TIN website www.tin-nsdl.com and click Status of Tax Refunds to see whether a refund is due to you.

ADCA provides expert services towards preparation and filing of the lower tds deduction certificate, co-ordination with department in getting the certificate, and also filing of TDS return for the deductor and filing of Income Tax Returns for the Seller.

For any clarifications and assistance, please get in touch with us at info@adca.in.

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