Section 395: certificates for lower or nil deduction/collection, and TDS certificates

Application for lower or nil deduction

Where tax is required to be deducted on any income or sum under this Chapter, the payee may apply to the Assessing Officer for a certificate allowing deduction at a lower rate, or no deduction at all. If the Assessing Officer is satisfied that the payee's total income justifies this, a certificate is issued accordingly.

Once such a certificate is issued (either under this provision or under the electronic-verification route in sub-section (6)), the payer must deduct tax at the rate specified in the certificate, or not deduct at all, for as long as the certificate remains valid.

Determining the taxable proportion for certain non-resident payments

For payments to a non-resident falling under Section 393(2) [Table Sl. No. 17], the payer may apply to the Assessing Officer, where he considers that the whole of the sum would not be chargeable to tax in the recipient's hands, for a determination of the appropriate taxable proportion. Once determined, tax is deducted only on that chargeable proportion.

Application for lower TCS

Similarly, where tax is required to be collected under this Chapter, the buyer, licensee or lessee may apply to the Assessing Officer for a certificate for collection at a lower rate; if satisfied, the Assessing Officer issues a certificate, and the collector applies that rate for as long as it remains valid.

Duty to issue TDS/TCS certificates

Every person deducting or collecting tax must issue a certificate to the deductee or collectee specifying the amount deducted or collected, the rate applied, and other prescribed particulars, within the prescribed time.

An employer under Section 392(2)(a), who pays tax on a non-monetary perquisite himself, must similarly certify to the employee that the tax has been paid to the Central Government, stating the amount and rate.

Cancellation and the electronic application route

The Assessing Officer may cancel a certificate granted under sub-section (1) or (3) after giving the applicant a reasonable opportunity of being heard.

An application for lower/nil deduction under sub-section (1)(a) may also be filed before a prescribed income-tax authority, which, after electronic verification of the application, may either issue the certificate or reject the application for non-fulfilment of prescribed conditions or incompleteness.

Frequently asked questions