Tax Deducted at Source (TDS) is a common method of income tax collection in India, where a portion of a person’s income is withheld at the source. This withholding can happen for various reasons and is determined by the rates specified in the Income Tax Act of 1961. However, in some cases, such as when Non-Resident Indians (NRIs) sell real estate; the TDS amount deducted may exceed their actual tax liability, leading to unnecessary fund blockage. To address this issue, NRIs can utilize the Income Tax Department’s TRACES portal to apply for a TDS Lower Deduction Certificate.
Section 197 of the Income Tax Act of 1961 provides taxpayers with the option of requesting a Nil or TDS lower deduction certificate, or even TDS exemption. To claim benefits of TDS Lower Deduction Certificate, individuals must file Form 13 in accordance with Section 197. This should be done with the income tax officer if there’s a valid reason to believe that their annual tax liability is lower than the TDS amount deducted by their payer then only officer will grant lower TDS deduction certificate. This process ensures that they receive the appropriate tax treatment for their income.
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Is it beneficial to get a lower TDS certificate for NRI?
Whether it is beneficial to get a lower TDS certificate for NRI depends on their individual circumstances and transactions. Generally speaking, an NRI may find it beneficial to obtain a TDS lower deduction certificate (LDC) since it allows them to deduct a lower TDS (Tax Deducted at Source) rate on their income or capital gains from selling real estate in India. However, in other circumstances, the NRI might not benefit from acquiring a lower deduction certificate for NRI. When compared to the tax burden, the tax savings from acquiring a lower tax deduction certificate for NRI could not be very considerable, for instance, if the capital gain on the sale of the property is sizable.
In these circumstances, it may be best for the NRI to simply deduct the whole TDS from the selling consideration and file an income tax return to request a refund of the excess tax. The choice to get a lower tax deduction certificate for NRI should ultimately be based on a detailed examination of the particulars of the transaction and any potential tax repercussions. To choose the best course of action, it is usually essential for an NRI to speak with a certified tax expert or financial counselor.
Application for obtaining certificate for lower deduction of TDS:
application for obtaining certificate for lower deduction of tds has to file through form 13.
If TDS is deducted under sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194LA, and 195 and the assessee thinks no or smaller TDS deductions should be permitted, you must use the procedure outlined below:
1] To obtain a lower TDS deduction certificate at a reduced tax rate, you must submit Form 13 to the Income Tax Department/Assessing Officer (AO).
2] The Assessing Officer must decide on the applications in a timely manner—within 30 days.
3] The taxpayer must submit all pertinent and full information needed to process the application in the initial phase.
4] To claim the client’s exemption, you can affix this certificate to the invoice. This certificate is only valid if the assessing officer does not revoke it.
5] Sections 194B, 194BB, 194DA, 194E, and 194IA do not offer TDS exemption or reduced TDS.
How to apply for lower deduction certificate online for NRI:
The assesse must submit a Form 13 application to the Income Tax/Assessing Officer in order to claim lower/NIL TDS. This Form 13 must contain the following details:
1] Name and PAN of the assessee/taxpayer.
2] Reason(s) for claim eligibility, number.
3] Information on the tax obligation based on the applicable income tax slabs.
4] Information on tax payments is available for the preceding three years at https://eportal.incometax.gov.in/iec/foservices/#/login .
5] Details on tax payments made in advance.
6] For the current financial year, TDS was deducted or collected.
What are the Incomes covered Under Section 197?
If the recipient’s income falls under the following sections, he can apply for section 197.
| Section | Type of Income |
| 192 | Salary income |
| 193 | Interest on securities |
| 194 | Dividends |
| 194A | Interest excluding interest on securities |
| 194C | Contractors income |
| 194D | Insurance commission |
| 194G | Commission/prize/remuneration on lotteries |
| 194H | Commission or brokerage |
| 194I | Rent |
| 194J | Fee for technical or professional services |
| 194LA | Compensation on acquiring immovable property |
| 194LBB | Income of units of investment fund |
| 194LBC | Income of investment in securitization trust |
| 195 | Non-residents’ income |
What is the eligibility for filing Form 13?
An application may be made if a person’s income is subject to TDS under the aforementioned rules and the recipient’s income justifies either no deduction of income tax or a lesser deduction of tax based on the expected overall tax burden. There are several particular income categories for which this is not the case, despite the fact that anybody, even companies, can make a Section 197 application. For non-deduction of TDS, individuals may also file a self-declaration in Form 15G/Form 15H declaring their income is nontaxable to organizations who are deducting their TDS.
Note: Non-residents are not permitted to claim the benefits of Forms 15G and 15H.
Documents required for lower deduction certificate for NRI:
1] Signed Form 13.
2] Copies of the last three years’ worth of financial records, including audit reports, showing professional or commercial revenue.
3] Copies of the income statement for each of the previous three years, together with a projected computation for the current year.
4] Copies of the last three years’ worth of tax returns, assessment orders, and acknowledgments.
5] Current financial year’s projected profit and loss statements
6] PAN Card.
7] E-TDS return statements for the previous two years
8] Information about the payers’ tax deduction accounts
9] Additional records that are related to the source of income
10] Specifics of prior TDS settings (if any)
Timeline to fill out a form:
In the income-tax provision, there is no deadline for submitting an application under Section 197. TDS, however, is applied to income from the current financial year; as a result, it is advisable to file an application at the beginning of the financial year for regular income received throughout the year and as needed for one-time income.
Note:
1] The AO discards the application for a TDS lower deduction certificate after 30 days.
2] After the AO is pleased with all the information the assessee has submitted, a TDS lower deduction certificate is given to him.
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