Key Highlights
- Lower TDS certificate under Section 398, ITA 2025 (was Section 197 of ITA 1961)
- Apply online on the IT Portal — TRACES/Centralised Processing Centre
- Available for most TDS sections: salary, interest, professional fees, rent, capital gains, non-residents
- Certificate specifies the deductor, rate, and validity period
- Deductor must apply the lower rate as per certificate — no discretion
- Not a right — AO has discretion to reject
Legal Reference
Section 398 (lower/nil TDS certificate), ITA 2025 | Online application on IT Portal | Corresponds to Section 197 of ITA 1961
1. When is a Lower TDS Certificate Needed?
A lower TDS certificate is useful when:
- Your actual income tax liability is lower than the TDS that would otherwise be deducted
- You have significant business losses, depreciation, or deductions that reduce actual liability
- You are a non-resident with DTAA benefits that reduce withholding below domestic rates
- You want to avoid blocking large amounts in TDS refunds
- You are a charitable trust or exempt entity whose income is otherwise exempt
2. How to Apply for Lower TDS Certificate
- Login to the Income Tax Portal with your PAN credentials
- Go to "Services" and select "Application for Lower/No Deduction" (Form 13 online)
- Fill Form 13 — providing income projections, past year ITR details, TDS deductions expected, and justification for lower rate
- Submit digitally — the application is processed by the Centralised Processing Cell
- If approved: Certificate issued specifying lower rate (or nil rate), validity period (usually for one Tax Year), and applicable deductors
3. Key Information Required in Form 13
- Nature of income on which lower TDS is requested
- Estimated income for the Tax Year
- Estimated tax liability after all deductions
- TDS already deducted (as reflected in Form 26AS/AIS)
- Previous 3 years ITR data and TDS history
- Justification for claiming lower rate (losses, exemptions, DTAA, etc.)
4. Validity and Scope of Certificate
The lower TDS certificate specifies:
- The deductor name(s) who must apply the lower rate
- The TDS rate at which deduction should be made
- The Tax Year of validity (usually one year)
- Maximum income threshold up to which the rate applies
The certificate is issued with conditions — if income exceeds the threshold specified, the regular TDS rate applies to the excess.
5. For Non-Residents: DTAA Lower Rate
Non-residents can apply for a nil TDS certificate or lower rate certificate under Section 398 based on DTAA provisions. Alternatively, they can provide a TRC (Tax Residency Certificate) + Form 10F to the Indian payer directly, allowing the payer to apply the DTAA rate without obtaining a formal certificate from the AO.
6. Why TaxClue
A lower TDS certificate improves cash flow by ensuring you do not over-pay TDS and wait months for refunds. TaxClue prepares and files Form 13 applications with supporting documentation for maximum success. Contact us for lower TDS certificate advisory and filing under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is a lower TDS certificate?
A lower TDS certificate under Section 398 of the Income Tax Act, 2025 is issued by the Assessing Officer allowing the deductor to deduct TDS at a rate lower than the normal applicable rate — or at nil rate. It is useful when your actual tax liability is lower than what the standard TDS rate would cover, helping you avoid blocking large amounts in TDS refunds. The certificate specifies the deductor, lower rate, and validity period.
How do I apply for a lower TDS certificate?
Apply online through the Income Tax Portal. Go to Services and select the lower/nil deduction application (equivalent to Form 13). Provide income estimates for the Tax Year, expected TDS from all sources, past 3 years ITR data, and justification for the lower rate (business losses, large deductions, DTAA provisions, etc.). The Centralised Processing Cell reviews and approves or rejects the application. If approved, a certificate is issued which you share with your deductors.
Who should apply for a lower TDS certificate?
Lower TDS certificates are useful for: businesses with current year losses that reduce actual tax liability below normal TDS rates; freelancers with large business expenses offsetting fee income; non-residents claiming DTAA benefits reducing withholding; charitable trusts with tax-exempt income; NRIs selling property where LTCG is lower than the TDS rate would suggest; and any taxpayer where TDS would significantly exceed actual tax liability, causing cash flow issues.
Does a lower TDS certificate guarantee the lower rate?
Yes, once issued. If you hold a valid lower TDS certificate, the deductor is required by law to deduct TDS at the rate specified in the certificate — the deductor has no discretion to deduct at a higher rate. If the deductor ignores the certificate and deducts at the higher rate, you can claim a refund in the ITR. The certificate is binding on the deductor within its specified scope and validity period.
Is there an alternative to a lower TDS certificate for non-residents?
Yes. Non-residents can alternatively provide the Indian payer with a Tax Residency Certificate (TRC) from their country of residence and Form 10F (if the TRC lacks required details). With these documents, the Indian payer can directly apply the DTAA withholding rate without a formal lower TDS certificate from the AO. This is often faster and simpler. A formal nil/lower TDS certificate from the AO (Section 398) is still needed when TRC/DTAA route is not applicable or when the income may not be taxable in India at all.
