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Section 197 of the Income Tax Act: A Guide to Lower TDS Rates and No TDS

Updated: Feb 12


Section 197 of the Income Tax Act: A Guide to Lower TDS Rates and No TDS
Section 197 of the Income Tax Act: A Guide to Lower TDS Rates and No TDS

Section 197 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. This section strikes a delicate balance between the requirement of cash flow to the taxpayer and realizing the government dues at the earliest.

 

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To avail this benefit, the assessee whose TDS is likely to be deducted on certain receipts should make an application before the Assessing Officer who has a jurisdiction over his/ her/ its case. The assessee/ deductee concerned may apply for a certificate for Nil or lower deduction of TDS on their receipts. This application is to be submitted to the assessing officer in the prescribed Form 13 along with necessary attachments. The application is a letter to assessing officer requesting the matter and providing the details of concern. Various details & documents are required to be furnished by the tax payer like:

  1. Copy of Permanent Account Number (PAN ) & address proof of deductee

  2. Copy of Tax deduction and Collection Number( TAN) & PAN of deductor

  3. Signed & Filled Form 13 (various details need to be filled in the form)

  4. Last 3 years ITR Copies

  5. Original Letter of Authority

  6. Copy of Balance Sheet, Statement of Profit & Loss Account (SPL) and Audit report of last three previous year


Understanding the Essence of Section 197

Section 197 of the Income Tax Act, 1961, is a pivotal provision in the realm of taxation in India, primarily dealing with the deduction of tax at source, commonly known as TDS. Because it affects the money coming in for taxpayers with certain income types, this section is very important. The purpose of Section 197 is to lessen the potential financial burden that the standard TDS rates may cause, as they may not be in line with the recipient's actual tax liability.

Key Features of Section 197:

  • Lower or Nil TDS: Section 197 allows taxpayers to apply for a certificate authorizing the payer to deduct tax at a lower rate or even forgo it entirely (nil rate), provided certain conditions are met.

  • Applicability: It applies to various income streams subject to TDS, such as interest, dividends, rent, commission, professional fees, and others.

  • Preventive Measures Against Excess Deduction: The provision is designed to prevent situations where the TDS deducted at source is higher than the actual tax liability of the taxpayer, leading to unnecessary blockage of funds and subsequent refund processes.

  • Beneficial for Certain Taxpayers: Particularly advantageous for those whose total income falls below the taxable threshold or who are eligible for lower tax rates due to deductions, exemptions, or lower income slabs.


Exploring the Purpose and Application

The Income Tax Act of 1961's Section 197 was created with the intention of enabling taxpayers to match their TDS with their tax obligation. This section is essential for people and organizations who think they will pay little or no taxes on their annual income.

Purpose of Section 197

  • Preventing Over-Deduction: The primary purpose is to prevent the over-deduction of tax at the source for taxpayers whose income falls below the taxable limit or who are eligible for lower tax rates due to various deductions and exemptions.

  • Facilitating Cash Flow: By reducing the TDS rate, Section 197 helps in maintaining the liquidity for taxpayers, ensuring that they are not unduly burdened by tax deductions that exceed their actual tax liability.

  • Streamlining Tax Compliance: