A brief study of Section 197 of Income Tax Act, 1961

Section 197 of the Income Tax Act, 1961 is a provision which allows for a lower rate of tax to be deducted at source / no tax to be deducted at source, i.e. the lower rate of TDS / no TDS. This section strikes a delicate balance between the requirement of cash flow to the taxpayer and realizing the government dues at the earliest.

To avail this benefit, the assessee whose TDS is likely to be deducted on certain receipts should make an application before the Assessing Officer who has a jurisdiction over his/ her/ its case. The assessee/ deductee concerned may apply for a certificate for Nil or lower deduction of TDS on their receipts. This application is to be submitted to the assessing officer in the prescribed Form 13 along with necessary attachments. The application is a letter to assessing officer requesting the matter and providing the details of concern. Various details & documents are required to be furnished by the tax payer like:

  1. Copy of Permanent Account Number (PAN ) & address proof of deductee
  2. Copy of Tax deduction and Collection Number( TAN) & PAN of deductor
  3. Signed & Filled Form 13 (various details need to be filled in the form)
  4. Last 3 years ITR Copies
  5. Original Letter of Authority
  6. Copy of Balance Sheet, Statement of Profit & Loss Account (SPL) and Audit report of last three previous year

Various details are required to be furnished in Form 13 like:

  • Status & Residential status
  • Permanent Account Number (PAN)
  • Assessment year to which payment relates
  • Estimated total income of previous year relevant to assessment year
  • Total tax including interest payable on the income
  • Detail of returned Income/ assessed income for last three assessment years
  • Tax payment for the last three assessment year
  • Details of payment of advance tax and tax already deducted/collected for the assessment year relevant to the current previous year till date i.e. Advance Tax, TDS & TCS
  • Details of income claimed to be exempt and not included in total income in.[Annexed reason of it as a note to it.]
  • Details of existing liability under Income Tax Act, 1961
  • Respective Annexure with schedule need to be filled as per the nature of receipt/Income

After disclosing all this information with relevant evidence or supporting documents to substantiate the information true and correct, the applicant is required to mention date, place and affix the signature of applicant itself on Form 13.

In order to streamline the procedure of handling the applications received u/s 197 and disposing the same in a time bound manner in consonance with the Citizens’ charter, the commissioner of Income tax (TDS) has issued certain guidelines for the Assessing Officers. These guidelines make it mandatory for the Assessing Officer to dispose of the applications u/s 197 within a time frame of 30 days from the end of the month in which application complete in ALL respect is received. Taxpayers are, therefore, advised to file complete details required for processing the application in the first instance itself. This will expedite the issuance of certificate u/s 197. Delays in this matter can be avoided by filing the prescribed form correctly and submitting the required details along with the form itself.

The Income-tax Officer is satisfied that the total income or the total world income of the recipient justifies the deduction of income-tax or super-tax at any lower rates or no deduction of income-tax or super-tax, as the case may be, the Income-tax Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

Certificate of no deduction of tax or low rate of tax shall be valid only with regard to the person responsible for deducting tax and named therein. The certificate approving deduction under Section 197 will be valid for the assessment year specified in the certificate or until cancelled by the Assessing Officer.
Once the certificate received by deductee, he/she/it can submit to deductor to deduct the TDS at NIL rate or lower rate.

Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the income-tax Officer, deduct income-tax and super-tax at the rates specified in such certificate or deduct no tax, as the case may be.

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