Section 197 Of The Income Tax Act: Applicability, Eligibility And More
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
Ans: One can validate their certificate by following some simple steps – individuals must log in to the TRACES website as a deductor using their login credentials. Next, the home page will be displayed. One must go to the statements/payments section and select “197 certificate validation.”
Ans: Taxpayers can view their Form 26AS by following these steps:
Step 1: Log in to the official website of the Income Tax Department.
Step 2: Go to the ‘My Account’ section and click on the view Form 26AS link.
Step 3: One must confirm the disclaimer, which will redirect the user to the CPC TDS portal.
Step 4: Click on view Form 26AS.
Ans: All payments made to NRIs are liable for TDS deduction even if their income falls under the nil tax slab. TDS is deducted under Section 195 for rent payments, sale of property, and income from mutual funds and bonds. NRIs can claim a TDS refund only if they file their returns within the due date.
Ans: Here are the steps to download the TDS exemption certificate:
Step 1: Log in to the TRACES portal using login credentials.
Step 2: Go to the section that allows one to download 197/206 Certificate.
Step 3: Enter the financial year, PAN of deductee or request number.
Step 4: Download the exemption certificate.
Ans: TDS is deducted by employers on salary payments under Section 192 of the IT Act. Residents below the age of 60 years will receive the amount after the TDS deduction only if their income is more than Rs. 2.5 lakh. For senior citizens, the limit for TDS deduction is Rs. 3 lakh, and for super senior citizens, the limit is further raised to Rs. 5 lakh.
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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.
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