Section 395 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 395 is the "certificates" section of the tax deduction and collection Chapter. It lets a payee ask for deduction at a lower rate or no deduction, lets a non-resident's payer ask for the taxable proportion of a sum, lets a buyer ask for lower collection, and requires every deductor or collector to issue a certificate of the tax deducted or collected. This article explains it as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked separately.
Under section 395(1) the payee applies to the Assessing Officer, who issues a certificate for lower or nil deduction if the total income justifies it, and the payer must then deduct as the certificate says till its validity. The Finance Act, 2026 substituted clause (c) and inserted sub-section (6), which lets the application also be filed before a prescribed income-tax authority for electronic verification, both w.e.f. 1-4-2026. Every deductor or collector must also issue a certificate to the deductee or collectee (sub-section (4)).
Section 395(1): lower or nil deduction
Where tax is required to be deducted on any income or sum under the Chapter, then, subject to the rules:
- (a) the payee may apply to the Assessing Officer for deduction at a lower rate or no deduction;
- (b) the Assessing Officer, on being satisfied that the payee's total income justifies it, issues a certificate as appropriate; and
- (c) when a certificate is issued under clause (b) or sub-section (6), the person responsible for paying the income or sum shall deduct the tax at the rate in the certificate, or deduct no income-tax, till its validity.
Clause (c) was substituted by the Finance Act, 2026, w.e.f. 1-4-2026. The wording it replaced referred only to a certificate under clause (b); the reference to sub-section (6) is the addition.
The tax-deduction rules themselves are in section 393. For the payer's side of compliance, see our TDS compliance service. The application form and conditions are left to the Income-tax Rules, 2026; our note on the rule for lower or nil deduction certificates is a starting point.
Section 395(2): payments to non-residents
Sub-section (2) applies to a person responsible for paying a non-resident a sum mentioned in section 393(2) (serial number 17).
| Clause | What it says |
|---|---|
| (a) | The payer may apply to the Assessing Officer, in the form and manner prescribed, if he considers that the whole of the sum would not be chargeable in the recipient's case |
| (b) | The application is for determination of the appropriate proportion of the sum chargeable to tax, by the Assessing Officer in the manner prescribed |
| (c) | When the determination is made, tax is deducted under section 393(2) (serial number 17) only on that proportion of the sum which is chargeable to tax under the Act |
Compare our article on tax deduction on payments to non-residents.
Section 395(3): lower collection of tax
Where tax is required to be collected under the Chapter, then, subject to the rules:
- (a) the buyer, licensee or lessee may apply to the Assessing Officer for collection at a lower rate;
- (b) the Assessing Officer, on being satisfied that the total income of the buyer, licensee or lessee justifies it, issues a certificate as appropriate; and
- (c) the person responsible for collecting tax collects it at the rates in the certificate till its validity.
Unlike sub-section (1), sub-section (3) speaks only of a lower rate, not of no collection. Collection at source is explained in section 394.
Section 395(4): the certificate of tax deducted or collected
| Clause | Who issues | What it must specify |
|---|---|---|
| (a) | Every person deducting or collecting tax, to the deductee or collectee | (i) the amount of tax deducted or collected; (ii) the rate; (iii) any other particulars as may be prescribed, within such period as may be prescribed |
| (b) | An employer referred to in section 392(2)(a), to the employee | That the tax has been paid to the Central Government, with (i) the amount paid; (ii) the rate; (iii) other particulars as prescribed, within the prescribed period |
The period and particulars are left to the rules. The salary side is covered in section 392. If you deduct tax and need to match certificates with statements, our TDS return filing team can help.
Section 395(5): cancellation
The Assessing Officer may cancel a certificate granted under sub-section (1) or (3) after giving the applicant a reasonable opportunity. The sub-section does not mention certificates under sub-section (6) in its words; it speaks only of sub-sections (1) and (3).
Section 395(6): the new electronic route
Sub-section (6) was inserted by the Finance Act, 2026, w.e.f. 1-4-2026 (the footnote belongs to this sub-section, though it is printed on the page where section 396 starts). It provides that the application referred to in sub-section (1)(a) may also be filed before the prescribed income-tax authority, subject to the prescribed conditions, and that authority, on electronic verification of the contents of the application, may:
- (a) either issue a certificate for deduction of income-tax at a lower rate or no deduction; or
- (b) reject the application on account of non-fulfilment of the prescribed conditions or because the application is incomplete.
Who the prescribed authority is and what the conditions are, the Act leaves to the rules; those details are not in the text consulted.
Worked example
Kavya Designs, an invented sole proprietorship, receives payments from a client that would ordinarily be subject to deduction under the Chapter. Its total income for the tax year is low. No rate is printed in section 395; the rate comes from the certificate.
- Kavya applies under section 395(1)(a), either to the Assessing Officer or, under sub-section (6), to the prescribed authority.
- The authority issues a certificate for deduction at a lower rate (say the certificate names a rate and a validity period; both are assumed here).
- The client, as the person responsible for paying, deducts tax at the certificate rate till its validity under clause (c).
- When the client deducts tax, it issues a certificate under sub-section (4)(a) showing the amount, the rate and the other prescribed particulars.
- If the Assessing Officer later cancels the certificate under sub-section (5), he must first give Kavya a reasonable opportunity.
Common mistakes
- Deducting at the ordinary rate after a valid certificate has been issued.
- Continuing to apply a certificate after its validity ends.
- Assuming the payee alone can apply. Under sub-section (2) it is the payer of a non-resident sum, and under sub-section (3) it is the buyer, licensee or lessee.
- Forgetting the deductor's duty to issue a certificate to the deductee under sub-section (4).
Key takeaways
- Section 395(1) allows lower or nil deduction by certificate; the payer follows the certificate till its validity.
- Sub-section (6), inserted by the Finance Act, 2026, adds an electronic route before a prescribed authority.
- Sub-section (2) deals with the taxable proportion of a non-resident sum; sub-section (3) with lower collection of tax.
- Sub-section (4) requires deductors and collectors to certify the tax deducted or collected.
Read next
- Section 393: the single TDS section
- Section 392: TDS on salary
- Section 394: collection of tax at source
- Section 397: compliance and reporting
- Section 398: assessee in default
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.