Certificate for Lower or Nil Deduction of Tax at Source – Practical Compliance Guide

An assessee whose projected income results in little or no final tax outgo can avoid excessive deduction of tax at source by obtaining a lower or nil TDS certificate from the Assessing Officer. This mechanism, routed through Form 13 on the TRACES portal, is particularly useful where regular cash flows depend on receipts subject to TDS.

This guide explains:

  • Who is eligible to apply
  • For which categories of income the certificate can be obtained
  • Detailed online filing process on TRACES for Form 13
  • Nature, validity, and operation of the certificate
  • Concept-check MCQs (rephrased) for quick revision

1. Concept of Lower / Nil TDS Certificate

Under the Income Tax Act 1961, TDS is generally deducted at specified rates from various payments such as salary, interest, rent, professional fees, and certain payments to non-residents. In many cases, the TDS deducted may substantially exceed the assessee’s actual tax liability for the year, leading to large refunds and cash flow issues.

To address this, the law allows an assessee to approach the Assessing Officer for a certificate authorising:

  • No deduction of tax at source (nil TDS), or
  • Deduction of tax at source at a rate lower than the standard rate

The Assessing Officer evaluates the assessee’s estimated income and tax liability for the relevant financial year and, if satisfied, issues a certificate for lower or nil deduction in respect of specified income streams.

Note: The certificate does not exempt the assessee from filing the return of income or from paying any balance tax that may ultimately be payable on assessment.

2. Eligibility – Who Can Apply?

The facility of obtaining a certificate for lower or nil deduction of tax is not restricted to any particular category of assessee.

The following can apply:

  • Resident individuals and HUFs
  • Non-resident individuals
  • Partnership firms and LLPs
  • Domestic companies
  • Foreign companies
  • Trusts, AOPs, BOIs, and any other person as defined in the Income Tax Act 1961

In essence, any assessee expecting that TDS under normal provisions will exceed the actual tax liability (or that no tax will ultimately be payable) may seek this certificate.

3. Income Categories for Which Certificate Can Be Sought

A lower or nil TDS certificate under Form 13 can be requested only in relation to specific types of income where TDS is required to be deducted under particular sections. The application can relate to one or more of the following:

  • TDS on salaries – Section 192
  • TDS on interest on securities – Section 193
  • TDS on dividend – Section 194
  • TDS on interest other than interest on securities – Section 194A
  • TDS on payments to contractors – Section 194C
  • TDS on insurance commission – Section 194D
  • TDS on commission on sale of lottery tickets – Section 194G
  • TDS on commission or brokerage – Section 194H
  • TDS on rent – Section 194-I
  • TDS on fees for professional or technical services – Section 194J
  • TDS on income in respect of units (resident) – Section 194K
  • TDS on compensation on compulsory acquisition of immovable property – Section 194LA
  • TDS on income distributed by Business Trust – Section 194LBA
  • TDS on income in respect of units of Investment Fund – Section 194LBB
  • TDS on income in respect of investment in Securitization Trust – Section 194LBC
  • TDS on payments by certain individuals or HUF to contractor or professional – Section 194M
  • TDS on payments to e-commerce participants – Section 194-O
  • TDS on payment of certain sum for purchase of goods – Section 194Q (applicable with effect from 01-10-2024)
  • TDS on any other sum chargeable to tax paid to a non-resident – Section 195

Important: The certificate under Form 13 is not available for all TDS sections (for example, certain special provisions such as Section 194-IB, Section 194B, Section 192A are not covered through this route).

4. Mandatory Use of PAN and Electronic Mode

To obtain a lower or nil TDS certificate:

  • The assessee must hold a valid PAN.
  • Without PAN, the application under Form 13 cannot be filed.
  • The filing is fully electronic and must be authenticated using:
    • A valid Digital Signature Certificate (DSC), or
    • Electronic Verification Code (EVC)

The application is filed on the TRACES portal and routed electronically to the jurisdictional Assessing Officer.