Section 197: General Provisions for Lower or Nil TDS Deduction

Section 197 of the Income Tax Act, 1961 provides a mechanism for taxpayers to obtain certificates for either:

1. Lower rate of TDS(than what is prescribed under the Act)
2. Nil rate of TDS

This section helps prevent excessive tax withholding when the taxpayer’s actual tax liability is lower than the standard TDS deduction rates.

1. Key Aspects of Section 197

1. Who Can Apply?

• • Individuals(including senior citizens)
  • Hindu Undivided Families (HUFs)
  • Companies
  • Partnership firms
  • Trusts and charitable institutions
  • Non-residents(in certain cases)

2. When to Apply?

When the taxpayer believes their:

• • Total income is below taxable limit
  • Estimated tax liability is lower than standard TDS rates
  • Income is exempt from tax (e.g., for trusts registered under Section 12A/12AA)

3. Types of Certificates

4. Application Process
5. File Form 13(online via TRACES portal)
6. Submit supporting documents:

• • Previous years’ ITRs
  • Current year income estimates
  • Proof of tax exemptions (if applicable)

3. Assessment by Assessing Officer (AO):

• • AO verifies documents
  • May ask for additional information
  • Issues certificate if justified

5. Validity Period

• • Financial Year specific(April 1 to March 31)
  • Not automatically renewable– fresh application needed each year
  • Can be revokedif taxpayer’s circumstances change

2. Practical Applications

Case 1: Senior Citizen Pension

• Sharma (68) receives ₹3.5 lakh pension annually
• After standard deduction (₹50,000), taxable income is ₹3 lakh (below basic exemption)
• Obtains Nil TDS certificateto prevent unnecessary 10% TDS on pension

Case 2: Startup Company

• Tech startup with ₹15 lakh revenue but ₹5 lakh net loss
• Obtains Nil TDS certificatefor contractor payments
• Preserves working capital during initial loss-making phase

3. Recent Updates (2023-24)

• Digital Process: Entire application now online via TRACES
• Faster Processing: Average decision time reduced to 30 days
• Auto-approval: For certain categories (like senior citizens) with complete documentation

4. Common Mistakes to Avoid

1. Applying too late– Certificate applies only from date of issue
2. Incomplete documentation– Leading to rejection
3. Not renewing annually– Certificates expire March 31
4. Continuing to use expired certificate– May lead to penalties

5. Conclusion

Section 197 serves as an important taxpayer relief provision that:

✔ Aligns TDS with actual tax liability

✔ Improves cash flow for individuals and businesses

✔ Reduces unnecessary refund claims

✔ Simplifies compliance for exempt entities

Pro Tip: Apply at least 2 months before major payments are due to ensure certificate is processed in time.