Section 197 lower / nil TDS certificate: when to apply, Form 13, and the validity period

The Scenario

Roopa Pillai is a consultant architect who invoices three corporate clients about Rs 38 lakh a year. Each client deducts 10% TDS under Section 194J of the Income Tax Act 1961 — a flat Rs 3.8 lakh withheld across the year, even though her actual tax liability after expenses and Section 44ADA presumption is closer to Rs 90,000. Her refund routinely sits with CPC Bengaluru until November, eating up working capital that should be funding her studio rent. The fix sitting inside the IT Act since 1961 is Section 197 — a lower or nil TDS certificate that the Assessing Officer (TDS) can issue on application in Form 13 through the TRACES portal. This Q&A unpacks who qualifies, what the deductor sees, how long the certificate runs, and why most rejection letters come down to two avoidable mistakes.

The utility extends beyond consultants. An NRI selling a Mumbai flat for Rs 2.4 crore faces 12.5% LTCG TDS under Section 195 — Rs 30 lakh deducted at registration even when the gain may be Rs 40 lakh and the tax due Rs 5 lakh. A salaried employee in the old regime with heavy HRA, 80C and home-loan interest can also approach the AO. Section 197 is the statute's pressure valve when default rates would over-collect.

Statutory Answer

Section 197(1) of the Income Tax Act 1961 reads: 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 payment under the relevant provisions, and the recipient justifies that the total income computed warrants no deduction or deduction at a lower rate, the Assessing Officer shall, on an application made by the assessee, give him such certificate as may be appropriate. The certificate then binds the deductor for the period and the rate stated on it. The Income Tax Department lists the procedural framework on the TDS portal at incometax.gov.in and the operational gateway is the TRACES site at tdscpc.gov.in.

The sections covered by a Section 197 certificate are listed in Rule 28AA of the Income Tax Rules 1962, and the practical menu is wide. The table below captures the everyday triggers and the default rate the AO can reduce.

The filing happens in Form 13 — fully online from FY 2018-19 onwards under Notification 8/2018 of the CBDT. The applicant logs in on TRACES with the PAN-based taxpayer ID, picks the financial year (a Form 13 cannot run beyond the FY in which it is issued), uploads three sets of evidence, and submits to the jurisdictional AO (TDS). The three sets are: projected income statement for the FY, copies of returns and computation for the previous three assessment years, and an estimate of the tax already paid (TDS to date plus advance tax plus self-assessment). Where the application is for Section 195, the NRI must additionally upload a Tax Residency Certificate and a Form 10F if claiming any DTAA benefit, and proof of the cost of acquisition for capital gains cases.

Rule 28AA(2) tells the AO how to fix the rate: existing and estimated tax liability for the FY divided by the estimated total receipts liable to TDS, expressed as a percentage. So if Roopa's estimated tax for FY 2025-26 is Rs 90,000 against projected receipts of Rs 38 lakh, the AO's working rate is 0.90 / 38 = 2.37%, and the certificate can authorise her three deductors to withhold at that rate instead of 10%. Rule 28AA(4) adds the validity rule — the certificate is valid for the FY mentioned, or such part of it as the AO may specify, and ceases the day the assessee's circumstances materially change (a new contract, an unplanned capital gain). The certificate is deductor-specific in the sense that the AO issues it for one or more named TANs, and a fresh certificate is needed for any deductor not on the list.

The CBDT's standing instruction is that Form 13 applications should be disposed within 30 days of receipt of complete information (CBDT Instruction No. 7/2009 dated 23 December 2009, reissued operationally in 2020 to align with online filing). In practice the system clock starts only when every annexure is uploaded, so a half-finished application sits in 'reverted for clarification' status for weeks. The Delhi High Court in Larsen and Toubro Ltd v. ACIT (TDS), W.P.(C) 1556/2017 reiterated that the AO must record cogent reasons before refusing or issuing at a rate higher than the Rule 28AA calculation suggests, and that automatic refusal on grounds of pending scrutiny is impermissible. The taxpayer's recourse against a rejection or a 'higher than expected' rate is a revision petition under Section 264 to the Commissioner.

A close cousin is Section 197A, which lets a resident below the basic exemption file Form 15G (or Form 15H for senior citizens) directly with the deductor — no AO involvement. That is the right route for a depositor with Rs 4 lakh of interest income and no other receipts. Section 197 is for everyone else: NRIs, professionals, landlords, e-commerce sellers, and salaried employees with complex claims who cannot use 15G/15H because their total income crosses the threshold.

Worked Resolution

Return to Roopa Pillai's FY 2025-26 numbers. She files Form 13 on 15 May 2025, ten days into the new FY. Her projected income statement shows gross receipts Rs 38,00,000, 50% deemed profit under Section 44ADA (Rs 19,00,000), Section 80C of Rs 1,50,000, Section 80D of Rs 25,000 — taxable income Rs 17,25,000. Under the new regime FY 2025-26 slabs (Finance Act 2025) her tax works out to Rs 1,72,500 plus 4% cess of Rs 6,900 = Rs 1,79,400; the Section 87A rebate of Rs 60,000 does not apply because her income is above Rs 12,00,000. She has paid Rs 50,000 advance tax in the June 2025 instalment, leaving Rs 1,29,400 to be covered by TDS.

The AO's Rule 28AA working: estimated tax to be deducted at source / estimated receipts = 1,29,400 / 38,00,000 = 3.40%. The certificate dated 18 June 2025 authorises her three corporate clients (TAN-wise) to deduct at 3.40% on payments made between 18 June 2025 and 31 March 2026. Across the remaining nine months she invoices Rs 28,50,000 and TDS comes to Rs 96,900 — exactly enough to cover the residual tax after her advance tax instalments. The cash flow improvement is dramatic: instead of waiting for a Rs 1,90,000 refund in November 2026, the right amount is withheld in real time.

For a numerical sense-check, run the same income through the Oquilia income tax calculator and cross-tally the deduction with the TDS calculator. The new-versus-old regime trade-off — relevant for any salaried applicant — is also worth running through the old vs new regime tool before fixing the projected liability the AO will work with. NRI sellers should pre-compute the gain on the capital gains calculator so that the cost of acquisition and indexation figure submitted on Form 13 matches what will eventually appear on the return.

A few hygiene rules separate certificates that issue in three weeks from those that languish. First, every deductor TAN must be live on TRACES and have filed at least one previous quarterly TDS return — else the AO cannot validate the relationship. Second, prior-year ITRs filed but not e-verified do not count. Third, projected income must be supported by a contract copy where receipts exceed Rs 50 lakh, failing which the AO defaults to the previous year's gross-up. Fourth, the certificate begins on the date of issue, not the date of application — so any payment in the gap is taxed at the default rate. Filing Form 13 in early April, immediately after the new FY opens, is the single biggest controllable variable. For more on how the related compliance ladder works, see our recent piece on the advance tax FY 2026-27 calendar and the Section 80G donations note, both of which feed the projected liability the AO needs.

FAQ

Who is eligible to apply under Section 197?

Any person whose income is liable to TDS under Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194LA, 194LBB, 194LBC, 194-O or 195 may apply, provided the total income for the FY justifies a lower rate than the statutory deduction. Section 197A is the parallel route for residents below the basic exemption who can self-certify with Form 15G or 15H.

How long is a Section 197 certificate valid?

Until 31 March of the FY in which it is issued, or such shorter period as the AO specifies in the certificate itself under Rule 28AA(4). A new application is required every FY, and the certificate ceases automatically if the assessee's income or contract base changes materially during the year.

Can a Section 197 certificate cover Section 195 payments to NRIs?

Yes — Section 195 is explicitly within scope of Section 197. NRIs commonly use it to bring the 12.5% LTCG TDS on Indian property sales down to the actual tax on the gain. The application must include a Tax Residency Certificate, Form 10F if claiming DTAA, and cost of acquisition proof.

What happens if the AO rejects the application?

The rejection order is appealable by way of a revision petition under Section 264 to the Commissioner, or by a writ to the jurisdictional High Court where the AO has refused to record reasons. The Delhi High Court has held that automatic refusal on grounds of pending scrutiny is impermissible.

Is there a fee for Form 13?

No. Form 13 filing on TRACES is free. The portal requires a digital signature certificate (DSC) for non-individual applicants and Aadhaar-based e-verification or DSC for individual applicants.

Can the deductor be penalised if it ignores a valid Section 197 certificate?

No — once the certificate is uploaded to TRACES and shows against the deductor's TAN, the lower-rate deduction is the deductor's statutory obligation. A deductor that continues to deduct at the higher default rate exposes itself to interest under Section 201(1A) on the over-deducted sum until refund.

Should a salaried employee apply for Section 197 or use Form 12BB?

Form 12BB is the standard route for declaring HRA, 80C, 80D and home-loan interest to the employer at the start of the FY; the employer then computes TDS net of those declarations. Section 197 is the fallback when Form 12BB is not enough — for instance, where the employee also has business income whose losses she wants set off against salary at source.