Section 197 of Income Tax Act

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Section 197 of Income Tax Act

The Income-tax laws permit certain taxpayers to get relief from TDS at a lower or nil rate under Section 197 of the Income Tax Act. Normally, TDS is deducted from salary and various other payments by Deductor and remitted with the Government. In case excess TDS is deducted, the taxpayer is allowed to apply and obtain an income tax refund by filing an income tax return for the excess TDS deducted. An Assessing Officer can grant relief from TDS provisions if the Officer is satisfied that the existing and estimated tax liability of a person will be lower than the amount of TDS deducted and provide sufficient grounds for the same. This article is a brief account of Section 197 of the Income Tax Act, which deals with this provision.

Section 197 of Income Tax Act

The contents of Section 197 of the Act are reproduced below for reference:

197. (1) Subject to rules made under sub-section (2A), where, in the case of any income of any person 
[or sum payable to any person, income-tax is required to be deducted at the time of credit or, 
as the case may be, at the time of payment at the rates in force under the provisions of sections 
192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA and 195, the Assessing Officer 
is satisfied that the total income of the recipient justifies the deduction of income-tax at 
any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, 
on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.
(2) Where any such certificate is given, the person responsible for paying the income shall, 
until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified 
in such certificate or deduct no tax, as the case may be.
(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, 
by notification in the Official Gazette, make rules specifying the cases in which, 
and the circumstances under which, an application may be made for the grant of a certificate 
under sub-section (1) and the conditions subject to which such certificate may be granted and 
providing for all other matters connected therewith.

Areas of Consideration

The eligibility of an assessee to claim the benefits of this rule is determined by the Assessing Officer by assessing his/her existing and estimated liability, which is determined by considering the following:

  • Tax payable on the estimated income of the previous year relevant to the assessment year.
  • Tax payable on the assessed or returned income of the preceding three tears.
  • Existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957.
  • Payment of advance tax for the assessment year relevant to the previous year until the date of making the relevant application.
  • Tax deducted at source for the assessment year relevant to the previous year until the date of making the relevant application.
  • Tax collected at source for the assessment year relevant to the previous year until the date of making the relevant application.

NIL TDS Certificate – Form 13

If the assessee wishes to avail nil or low deduction of TDS, he/she must make an application in Form 13 to the Income Tax Officer. After assessing the application, the Assessing Officer will grant a certificate on being satisfied that such a deduction is justified. On making an application for exemption from TDS provisions in Form 13, the Assessing Officer must dispose the application within a time period of 30 days from the end of the month, in which the completed application is received in all respects. The certificate approving deduction under Section 197 will be valid for the assessment year specified in the certificate or until cancelled by the Assessing Officer.

Form 13 of the Income Tax Act is reproduced below for reference:

Form 13 – Income Tax Act

Deductors Role on Receipt of Form 13

In case a taxpayer provides a TDS deductor with a copy of the certificate for nil or lower TDS deduction, the deductor can abstain from deducting TDS or deduct TDS at a lower rate. Before the TDS deduction it is recommended that the deductor complete the following steps to validate the Form 13:

  • Validate the PAN of the deductee who submits the certificate.
  • Ensure the validity of certificate with PAN.
  • Verify the certificate’s validity with the relevant financial year.
  • Verify whether the threshold limit of the certificate has not been exceeded in previous quarters.
  • Verify whether the threshold limit for the certificate has been exceeded in previous quarters.
  • Raise the Flag “A” in the statement for a certificate u/s 197 and Flag “B” for certificate u/s 197A.
  • Ensure the specification of the Certificate number in the statement.

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