Section 395: lower or nil TDS, lower TCS and tax certificates

Introduction

Section 395 provides distinct certificate routes: a payee may seek lower or nil TDS, while a buyer, licensee or lessee may seek lower TCS. The 2026 amendment also permits prescribed electronic verification of certain TDS certificate applications.

Key takeaways

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.

Step-by-step flow for applying Section 395

1. 1

   Are you the payee who wants a lower or nil TDS rate?

   • Yes: Apply to the Assessing Officer under Section 395(1); if satisfied, the AO issues a certificate and the payer must follow it during its validity.
   • No: Go to the next step.
2. 2

   Are you paying a non-resident under Section 393(2) Sl. No. 17 where not all of the sum is taxable?

   • Yes: Apply under Section 395(2) for determination of the chargeable proportion; deduct only on that proportion.
   • No: Go to the next step.
3. 3

   Are you a buyer, licensee or lessee seeking lower TCS?

   • Yes: Apply under Section 395(3) for a lower collection certificate.
4. 4

   Have you deducted or collected tax?

   Issue a certificate to the deductee or collectee showing the tax, rate and prescribed particulars within the prescribed time (Section 395(4)).

Practical checklist

Glossary

Lower or nil deduction certificate

A certificate authorising deduction at the lower rate or without deduction in the circumstances specified by section 395.

Chargeable proportion

The part of a payment to a non-resident determined to be chargeable for the relevant source-tax deduction.

Frequently asked questions