Lower Tax Deduction Certificate

Inside this Article

1. Introduction
2. What is Lower Tax Deduction Certificate
3. Need for Lower TDS Application
4. Who is Eligible to Apply
5. Online Application Process
6. Usage and Validity of Certificate
7. Timeline for Application
8. Modification of Certificate
9. Practical Issues and Challenges faced
10. Governing Sections and Rules
11. TDS on E-Commerce Sellers

• Lower deduction/No Deduction Certificate is a Certificate given by the deductee to the deductor either for reduction in rate or NIL rate of TDS on the receipt amount due to the deductee.
• This certificate is obtained by the deductee from the Jurisdictional TDS Officer on providing relevant information as required under the Rules.

• The incomes/ receipts represent the working capital of the deductee.
• In cases where the total income of the deductee is not liable to tax or liable to tax a lower rate, the amount so withheld and deposited with Government can be claimed by the Deductee only at the time of filing return of income.
• Blockage of working capital of the deductee with the Government until the same is claimed in the return of Income at the end of the year.
• This will result in higher cash flows upfront for the Company and no funds are locked up with Government.

Banshi Jain & Associates
Chartered Accountans

• Existing liability under the Income-tax Act, 1961.
• Payment of advance tax for the assessment year relevant to the previous year until the date of making the relevant application.
• Tax collected at source for the assessment year relevant to the previous year until the date of making the relevant application
•  % of deduction applicable
  The deductor is then responsible to deduct tax at the rate mentioned in the certificate or not deduct any tax as the case may be.

Timeline for Application

• One can apply for Lower Deduction Certificate upto 15th March of the F.Y. for which deduction is sought for. The Application can be submitted for the next F.Y. from 1st March of the Previous F.Y.
• For example, if one has to apply for Lower Deduction Certificate for F.Y. 2020-21, the applications can be submitted from 1st March 2020 to 15th March 2021
• Once the application is submitted, the AO may accept, seek clarification, reject or accept on modified terms which may generally take 15-45 Days which differs on case to case basis.

Modification of
Certificate

1. Cases that require modification

• Exhaustion of the permissible limit of transaction value mentioned in the certificate
• Addition of new parties/deductor Deduction of tax under an additional
• section by an already existing party/deductor
• § Parties entitled to use

Only the parties mentioned in the application are entitled to use the Lower Deduction Certificate. The Deductee cannot claim lower/No deduction from any party other than those mentioned in Form 13 while making application.

Practical Issues and
Challenges faced

1. Rule 28 provides for filing of Form 13 electronically either under Digital Signature or through Electronic Verification Code
2. Timeline for Application
3. Rule 28AA provides for Certificate for deduction at lower rates or no deduction of tax from income other than dividends
4. Rule 28AB provides for Certificate of no deduction of tax in case of certain entities and
5. Rule 29 provides for Certificate of no deduction of
   tax or deduction at lower rates from dividends.

• If E-Commerce Seller is Resident Individual or HUF, then TDS need not be deducted if aggregate amount paid/credited during the year does not exceed INR 5 Lakhs and seller furnished PAN or Aadhaar
• If PAN is not provided by the seller, then TDS of 5% would be deducted instead of 1%
• TDS deducted by E-Commerce Platform operators at the time of Credit or payment whichever is earlier

Need for Lower TDS:

• 1% TDS on sale of Goods/Services will result in Cash crunch for the sellers who are incurring Losses.
• Tax Credit will be available at the time of filing return. This will result cash deficiency till the time of receiving refund.
• Getting a lower TDS Certificate will help the E-Commerce sellers to run the business efficiently.

Appendix I : Pre – Requisites of application for
Lower Deduction Certificate

Below mentioned are the Pre- Requisites for application of lower deduction certificate:

1. Traces Login ID and Password
2. Know the Jurisdiction of the TDS officer
3. Ensure No Online TDS default or Income Tax Demand is Outstanding
4. Financial Statement for the last 3 financial years (or lesser if business is in existence for a lesser period) and projected financials for the current financial year.
5. Details of Income of last 3 years and projected income for the current financial year.
6. Income tax returns for the last 3 years
7. Details of Tax deduction of the last 3 years – Form 26AS
8. List of customers with respective TAN and projected income from each customer
9. Registration/exemption Certificate in case of certain entities covered under section 11 or 12. It is mandatory, if declaration no. 1 is selected as a resident covered under Rule 28AB.
10. Registration/exemption Certificate in case of certain entities covered under section 139(4C) where income is exempt under section 10, If declaration no. 2 is selected as a resident covered under Rule 28AB
11. Computation of Income of last 3 Financial Year(or less as applicable) and projected Financial Years
12. MAT Computation of Income of last 3 Financial Year(or less as applicable) and projected Financial Years

THANK YOU