Section 197 Of The Income Tax Act: Applicability, Eligibility And More

Income Tax

Assesses wanting to avail the facility of nil or low rates of TDS on certain payments received by them can do so with the help of Section 197. Taxpayers need to apply for the same with their Assessing Officer in a prescribed format. 

They need to fill out Form 13 under Section 197 of the Income Tax Act, apply for a nil TDS certificate or lower TDS deductions, and submit the form to the assessing officer. After considering total income, tax slab, and other factors, the AO may grant a nil or lower TDS certificate to the particular taxpayer. 

Sources of Income Covered under Section 197 of the Income Tax Act

Here are the different sources of income covered u/s 197 of the Income Tax Act:

• Salary 

Any TDS deducted with regard to salary is applicable for exemption or deduction under the relevant Section.

• Interest on securities

TDS on interest on securities may be applicable for nil or lower TDS. 

• Dividend

Any tax deducted for dividend payments to beneficiaries is also eligible for claiming nil or low TDS deductions as per Section 197.

• Payment to contractors

 Assesses can claim TDS relief when tax is deducted for payment to contractors. Herein contractors refer to individuals carrying out work in accordance with a contract. 

• Insurance commission

Any tax deducted on commission related to insurance is also eligible for nil or a lower rate of TDS. 

• Income from lottery

Tax deducted on any income from the lottery in the form of prize money comes under this Section. Furthermore, commissions are also included for TDS relief.

• Commission and brokerage

Tax deducted on payment of commission and brokerage to any resident of India comes under relaxation benefits as per Section 197.

• Income from rent 

TDS deducted on rent income can be completely exempt or deducted at low rates. 

• Professional income

Professional income earned by individuals can be subject to lower TDS deduction rates. 

• Dividends from mutual funds

194K or tax deducted on dividends received from mutual fund units can also be claimed for lower rates or zero TDS. 

• Payment of compensation

Any payment made on account of compensation and associated tax deducted on them is also eligible for relaxations. 

• prize money for winning a horse race

TDS on winnings from horse races can also be subject to a lower TDS deduction.

• Income from investment in securitisation trusts

Individuals and companies earning income from investments in securitised trusts and tax deducted on the same are also eligible for TDS exemption. 

• Income of resident contractors

Income earned by resident contractors and TDS deducted on the same is also eligible for TDS relaxations under the same provision. 

• Payment to non-residents

TDS deducted on payment to non-residents under Section 195 is also liable for zero deduction under 197. 

Applicability of TDS Deductions

Individuals making some specified payments as per IT Act must deduct TDS at rates mentioned in the statute book. However, there is no provision to deduct TDS when such a payment is made by entities whose books do not come under the provision of the tax audit. 

If entities are making rent payments that exceed Rs. 50,000 per month, they are required to deduct TDS @ 5% even though they are not liable for a tax audit. Furthermore, employers deduct TDS while paying salaries according to tax slabs. While crediting interest on various deposits, banks deduct tax at the rate of 10% or 20%. 

Also Read: How To Get Tax Benefits On Tuition Fees Of Your Children?

Eligibility Criteria for Claiming Benefits under Section 197

Individuals earning income under the aforementioned heads can apply for lower TDS deductions. That said, the income of taxpayers must justify any nil or lower deduction. Furthermore, whether or not taxpayers can claim benefits under this Section depends on their final tax liability. 

The following factors determine taxpayers’ existing liability:

• Tax payable on the estimated income of last financial year, which is relevant to the assessment year 
• Tax payable on the assessed income of the preceding three years
• Prevailing liability under IT Act and Wealth Act, 1956
• Any advance tax payment for the assessment year until the date of making an application
• TDS and TCS for the assessment year until the date of applying for exemptions 

Procedure to Apply for TDS Relaxations under Section 197

Follow these steps to apply for TDS relaxation:

• Assesses can file an application by filling out Form 13. One will submit the form to the Assessing Officer. Individuals can do so via the online or offline mode, depending on the options available. Regions of Karnataka, Mumbai, and Tamil Nadu have started accepting online applications for Form 13. 
• Assesses must fill out the form with accurate details. 
• AO will scrutinise the application and, once satisfied, he/she may grant nil or lower TDS certificate under Section 197 of the Income Tax Act to the assessee. 
• On receiving the certificate, assessees can attach the same with the invoice given to the deductor as proof of their claim of lower or nil TDS deduction.

Validity of Application under Section 197 of Income Tax Act 

The certificate received by an assessee granting him/her benefits related to TDS deductions is valid for a specific financial year. It is valid from the date of issue till the end of the financial year except when cancelled earlier by AO. 

Also Read: Section 145A Of The Income Tax Act

Final Word

Section 197 of the Income Tax Act provides much-needed TDS relaxation for certain categories. Individuals applying for the benefit need to fill out Form 13 and submit it to their Assessing Officer. Individuals must fill out the form carefully and accurately as the AO will accept or reject the request after taking into consideration the information provided in the form. 

FAQs On Section 197 Of The Income Tax Act

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.