Every year, millions of Indian taxpayers — from salaried professionals and NRIs to businesses and investors — end up losing significant working capital to excess Tax Deducted at Source (TDS). The TDS is deducted at flat statutory rates, often with no regard for an individual’s actual tax liability. The result? You wait months, sometimes over a year, for a refund after filing your ITR.

There is a smarter, proactive solution: obtaining a Lower TDS Certificate. And from 1 April 2026, under the Income Tax Act 2025, this process has been fundamentally redesigned through Form 128 — the new, structured replacement for the old Form 13.

Whether you are a resident individual, a Non-Resident Indian (NRI) selling property in India, a business receiving professional fees, or a trust managing large interest income, the Lower TDS Certificate Form 128 under the Income Tax Act 2025 is now the definitive tool to manage your TDS deductions intelligently. This guide breaks everything down — the legal basis, eligibility, structure, filing process, and everything in between.

What Is Form 128?

Form 128 is an application form filed by a taxpayer to request the Income Tax Department to issue a certificate that legally authorises the payer (bank, buyer, employer, client) to deduct or collect tax at a lower rate — or not deduct at all.

In plain terms: if your actual tax liability for a Tax Year is lower than the TDS being cut from your income, Form 128 lets you formally prove that to the department. Once your Assessing Officer (AO) approves the application, your payer is bound by law to deduct TDS at the reduced rate specified in the certificate, rather than at standard statutory rates.

Form 128 is effective from 1 April 2026 and replaces the old Form 13 under the Income Tax Act, 1961. It covers both:

TDS (Tax Deducted at Source) — under Section 395(1) of the Income Tax Act, 2025
TCS (Tax Collected at Source) — under Section 395(3) of the Income Tax Act, 2025

Important Note: A certificate already issued under Section 197 of the Income Tax Act, 1961 (old Form 13) will remain valid for payments or credits made on or after 1 April 2026, provided it was issued for the projected receivables of Tax Year 2026-27.

Form 128 vs Form 13: Key Differences

Feature	Old Form 13	New Form 128
Governing Act	Income Tax Act, 1961	Income Tax Act, 2025
Governing Section	Section 197 / 206C(9)	Section 395(1) / 395(3)
Applicable Rule	Rules 28, 28AA, 28AB, 29, 37G & 37H	Rule 213 of IT Rules, 2026
Effective Period	Until 31 March 2026	From 1 April 2026 onwards
Applicant Classification	No structured categories	Four explicit categories defined
Terminology	Assessment Year / Financial Year	Tax Year
Smart Form Features	Basic digital form	Auto-fill, API integration, real-time validation
Child Certificate Feature	Limited	Formally structured and portal-driven

The shift from Form 13 to Form 128 is not merely a renumbering exercise. The new form is structurally more organised, applicant-category-driven, and technology-enhanced — reducing both errors and processing time.

Legal Framework: Section 395 of the Income Tax Act 2025

The legal basis for obtaining a Lower TDS Certificate has shifted from Section 197 of the Income Tax Act, 1961 to Section 395 of the Income Tax Act, 2025.

Section 395(1): Governs lower or nil deduction of TDS. Where the AO is satisfied that the total income of a person justifies deduction at a lower rate or no deduction, a certificate to that effect can be issued.
Section 395(3): Governs lower or nil collection of TCS (Tax Collected at Source).
Rule 213, Income Tax Rules 2026: Prescribes the procedural framework, documents, timelines, and the format of Form 128 itself.

The fundamental principle remains unchanged: the AO must be satisfied that the taxpayer’s total income, after accounting for exemptions, deductions, and credits, justifies a reduction in the TDS/TCS rate.

Who Can Apply for a Lower TDS Certificate?

Lower TDS certificate eligibility is broad — both residents and non-residents can apply. Any taxpayer whose actual tax liability for the Tax Year is lower than the TDS or TCS being deducted on their income is eligible to file Form 128.

Form 128 formally classifies applicants into four categories:

Category 1 — Registered Non-Profit Organisations Trusts, societies, and institutions registered under relevant provisions of the Income Tax Act, 2025 that receive donations, grants, or interest income.

Category 2 — Specified Entities under Section 263(9)(c) Government-backed or statutorily recognised entities that receive large volumes of payments from multiple payers.

Category 3 — Persons Carrying on Business or Profession Companies, LLPs, partnership firms, proprietorships, and other business entities receiving contract payments, professional fees, commissions, or rent.

Category 4 — All Other Persons This is the largest and most common category — covering salaried individuals, investors, retirees, HUFs, and Non-Resident Indians (NRIs) who receive interest, rental income, capital gains proceeds, or property sale consideration.

Your category determines which parts of the form, declarations, and annexures are applicable — significantly reducing unnecessary compliance burden.

Types of Income Covered Under Form 128

A lower TDS certificate through Form 128 can be sought for a wide range of income types, including:

Interest income — from fixed deposits, bank savings, bonds, and debentures
Rent from property — residential or commercial
Professional and technical service fees — payments to consultants, doctors, architects, etc.
Commission and brokerage — received by agents, distributors, and brokers
Contract payments — received by contractors and sub-contractors
Sale of immovable property — especially relevant for NRIs where buyers deduct TDS at 20–30%
Capital gains — from sale of securities, mutual fund units, or real estate
TCS transactions — purchases, sale of goods above threshold (via Annexure-III)

Structure of Form 128: Parts A to F and Annexures

Form 128 is a multi-part structured form, each section serving a distinct purpose.

Part A — Applicant Details

Captures the applicant’s identity: Name, PAN, residential status (resident/NRI/foreign company), address, and contact information. Fields are separated into distinct boxes to eliminate data entry anomalies.

Part B — Nature of Applicant

The applicant declares their category (Non-Profit, Specified Entity, Business/Profession, or Others) and provides particulars of the income or transaction for which the certificate is sought.

Part C — Income and Tax Details

Covers estimated total income for the Tax Year, projected tax liability, advance tax paid so far, and TDS/TCS credits already available in Form 26AS or AIS.

Part D — Declaration for Non-Profit Organisations and Specified Entities

Applicable only to Category 1 and 2 applicants. Contains specific declarations required under Rule 213.

Part E — Declaration for All Other Applicants

For individuals, businesses, and NRIs (Categories 3 and 4). Confirms that the income details are accurate and tax liability justifies a reduced deduction.

Part F — Verification and Digital Signature

The final section where the applicant signs off using a DSC (Digital Signature Certificate) or EVC (Electronic Verification Code) before submission.

Annexures

Annexure	Applicability
Annexure-I	TDS applications where payer details (TAN, name) are known
Annexure-II	TDS applications where payers exceed 100 and their details are unavailable at the time of filing; leads to Child Certificate generation
Annexure-III	TCS (Tax Collected at Source) applications

Documents Required for Form 128 Application

Document / Detail	Purpose
PAN of the applicant	Mandatory — Form 128 cannot be submitted without PAN
TAN of payer(s)	Required in Annexure-I and III where payer details are known
Computation of estimated total income and tax liability	Core document justifying the lower/nil rate request
Last 4 years’ ITRs	Historical financial data reviewed by the AO; if not filed, separate income computations must be attached
Audit reports / financial statements	For businesses, LLPs, companies, and trusts
Advance tax payment details	Challan copies of advance tax already deposited
TDS/TCS credit details	From AIS (Annual Information Statement) or Form 26AS

Pro Tip: Prepare a detailed income computation note before you begin filling the online form. The TRACES portal does not save incomplete drafts, and incomplete documentation is the most common reason for AO rejection or delay.

How to Apply for Lower TDS Certificate in Form 128

Form 128 cannot be filed offline. It must be submitted exclusively through the TRACES portal at www.tdscpc.gov.in. It is not available on the Income Tax e-filing portal (incometax.gov.in).

Your application is reviewed by the Jurisdictional Assessing Officer (AO). The AO examines your income projections, past tax history, and existing credits before approving or rejecting the application.

Child Certificates Under Form 128

One of the most significant new features of Form 128 is the formalised Child Certificate mechanism, especially relevant for businesses, mutual funds, stockbrokers, and large corporate entities with hundreds of payers.

When does it apply? When you file Form 128 using Annexure-II — i.e., when the number of persons responsible for deducting TDS is likely to exceed 100 and their individual details are not available at the time of filing.

How it works:

The AO issues a master certificate in the name of the applicant, specifying the approved lower rate and the maximum aggregate amount covered.
The applicant then generates individual Child Certificates on the TRACES portal — one for each payer/deductor — as their details become available.
Each Child Certificate specifies the exact TDS rate for that particular deductor.
The deductor must deduct tax as per the Child Certificate and quote its details in the TDS statement.

Multiple child certificates can be generated, as long as the total payment amount stays within the limit authorised by the master certificate.

Lower TDS Certificate for NRI: Special Provisions

The Lower TDS Certificate for NRI applicants is one of the most high-value applications of Form 128. NRIs face disproportionately high TDS rates on Indian income — here is why these matters:

Typical TDS rates applicable to NRIs:

Sale of property: 20% to 30% on the entire sale consideration (not just profit)
Interest income: 30%+
Rental income: 30%+
Capital gains on shares and mutual funds: 10% to 30%

For an NRI selling a property worth ₹1 crore, the buyer may be required to deduct ₹20–30 lakh as TDS — even if the actual capital gains and tax liability is a fraction of that.

How Form 128 helps NRIs:

NRIs can file Form 128 on the TRACES portal by selecting their residential status as non-resident at the time of application.
For property transactions, the NRI seller applies before the sale deed is executed. The certificate then legally obligates the buyer to deduct TDS at the lower approved rate instead of the statutory rate.
Special facility for buyers: Persons purchasing property from an NRI can apply for a lower deduction certificate directly on the Income Tax Portal using a PAN-based facility — without going through TRACES.

Critical timing note: For property sales, the lower TDS certificate must be obtained before the sale transaction is finalised. The application cannot be processed retroactively after TDS has already been deducted.

Time Limit and Validity of Lower TDS Certificate

When should you apply?

The golden rule: apply before the transaction or payment occurs. Once TDS or TCS has been deducted or collected on a transaction, the application for that specific transaction cannot be processed.

Scenario	Recommended Filing Time
Regular income (FD interest, rent, salary)	Beginning of the Tax Year (April)
Property sale	Before the sale deed is registered
One-time professional fees	Before the payment is due
Capital gains (securities)	Before the redemption or sale

How many times can you file?

There is no statutory limit on the number of times Form 128 can be filed in a Tax Year. If your income estimates change mid-year — due to additional transactions, fresh FDs, or revised contracts — you can file a new application.

How long is the certificate valid?

The certificate is valid for the period specified in it by the AO, which is typically for the current Tax Year (1 April to 31 March). It can also be issued for a specific transaction period. The AO may withdraw or modify the certificate if circumstances change.

Can you withdraw an application?

Yes. An application in Form 128 can be withdrawn — but only before it has been processed by the AO.

Practical Use Cases

Use Case 1 — NRI Selling Property in India Rajiv, an NRI based in the UK, is selling his flat in Pune for ₹80 lakh. His actual long-term capital gains after indexation are ₹12 lakh. Without a lower TDS certificate, the buyer will deduct ₹16 lakh (20%) as TDS. Rajiv applies via Form 128 on TRACES before the sale — the AO reviews his capital gains computation and issues a certificate authorising TDS at a reduced rate. The buyer deducts tax accordingly, saving Rajiv a major cash flow crunch.

Use Case 2 — Business with High TDS on Contracts A logistics company receives ₹2 crore per year in freight payments from multiple clients. TDS at 2% means ₹4 lakh deducted. But the company has carried-forward losses and advance tax credits — its actual liability is nil. The company files Form 128 using Annexure-II (payers exceed 100), receives a master certificate, and generates Child Certificates for each client. No TDS is deducted for the year.

Use Case 3 — Senior Citizen with FD Income Mrs. Sharma, a retired senior citizen, earns ₹3.5 lakh annually from bank FDs. Her total income after standard deduction and Chapter VIA deductions is below the taxable threshold. Rather than waiting for a TDS refund, she applies via Form 128 at the start of the Tax Year. The AO issues a nil deduction certificate — the bank stops deducting TDS from her FD interest.

Common Mistakes to Avoid

Applying after TDS is already deducted: The application cannot be processed retrospectively.
Not filing early enough: TRACES applications require AO processing time — do not apply at the last minute.
Incorrect income estimates: Understating projected income can lead to AO rejection or certificate cancellation.
Missing payer TAN: Annexure-I cannot be completed without the TAN of the deductor.
Forgetting to share the certificate with the payer: The payer will not automatically know the certificate exists — you must provide it proactively.
Assuming Form 128 and Form 121 are the same: Form 121 (equivalent to old Form 15G/15H) is a self-declaration to the payer and requires no AO approval. Form 128 requires AO approval and is applicable to a much wider range of incomes.

Conclusion

The transition from Form 13 to Form 128 under the Income Tax Act 2025 is more than a procedural update — it is a structural overhaul aimed at making the lower TDS certificate process faster, more transparent, and more accessible. Whether you are an NRI navigating property sale TDS, a business managing high-volume contract receipts, or a retiree tired of waiting for FD interest refunds, Form 128 is your tool for proactive, efficient tax management.

The key takeaway is timing: apply before the transaction, prepare your income computation carefully, and file through the TRACES portal. Do not wait for excess TDS to be deducted and then chase a refund — that is an expensive use of your own money.

Frequently Asked Questions (FAQs)

What is Form 128 under the Income Tax Act 2025?

Form 128 is the official application form introduced under the Income Tax Act, 2025 (Rule 213 of Income Tax Rules, 2026) for obtaining a Lower TDS or Nil TDS Certificate. It replaces the old Form 13 under Section 197 of the Income Tax Act, 1961. Once approved by the Assessing Officer, it authorises the payer to deduct TDS or collect TCS at a lower or nil rate.

What is the applicable section for a lower TDS certificate from 2026 onwards?

From 1 April 2026, the applicable section is Section 395(1) of the Income Tax Act, 2025 for TDS, and Section 395(3) for TCS. These replaced Sections 197 and 206C(9) of the old Act.

Who is eligible to apply for a lower TDS certificate in India in 2025-26?

Any resident or non-resident taxpayer — individual, HUF, company, trust, or other entity — whose actual tax liability for the Tax Year is lower than the TDS/TCS being deducted on their income is eligible. This includes NRIs with property sale income, businesses with contract receipts, investors with interest income, and retirees with FD income.

What documents are required for a Form 128 application?

The key documents are: PAN of the applicant, TAN of payer(s), computation of estimated total income and tax liability for the Tax Year, last 4 years’ ITRs (or separate income computations if ITRs were not filed), audit reports and financial statements for businesses, advance tax payment challans, and TDS/TCS credit details from AIS/Form 26AS.

Is there a time limit for the approval of a Form 128 application by the AO?

The Income Tax Act 2025 and the Rules do not specify an explicit statutory deadline by which the AO must process the application. However, the department aims to process applications promptly. In practice, it is advisable to apply at least 15–30 days before the expected payment date to allow for processing time.

Can an NRI apply for a lower TDS certificate in India?

Yes. NRIs can file Form 128 on the TRACES portal. It is particularly valuable for NRIs selling property in India, where buyers are required to deduct TDS at 20–30% on the full sale consideration. With a valid lower TDS certificate, the buyer deducts tax only at the AO-approved reduced rate, significantly improving the NRI seller’s cash flow.

What is a Child Certificate under Form 128?

A Child Certificate is generated by a taxpayer from a master lower TDS certificate (issued by the AO under Annexure-II of Form 128) for each individual deductor. It is used when the applicant has more than 100 payers whose details were not available at the time of the original Form 128 filing. Each Child Certificate specifies the exact TDS rate for that specific deductor.

Is Form 128 applicable for TCS as well?

Yes. Annexure-III of Form 128 covers Tax Collected at Source (TCS) transactions under Section 395(3) of the Income Tax Act, 2025.

How many times can Form 128 be filed in a Tax Year?

There is no statutory limit. A taxpayer can file Form 128 multiple times in a Tax Year, whenever there is a change in projected income or a new transaction requiring a lower/nil deduction certificate.

What is the difference between Form 128 and Form 121?

Form 121 is the new equivalent of old Forms 15G and 15H — a self-declaration submitted directly to the payer for nil tax deduction, applicable only where income is below the taxable threshold. Form 128 requires approval from the Assessing Officer and results in a formal, legally binding certificate. Form 128 is applicable to a far wider range of incomes, including cases where income is taxable but at a rate lower than the standard TDS rate.

Can a Form 128 application be withdrawn?

Yes, an application can be withdrawn, but only before it has been processed by the Assessing Officer. Once the AO has processed and issued the certificate, withdrawal of the original application is no longer possible.

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Lower TDS Certificate Form 128 Under Income Tax Act 2025