Lower TDS Deduction Certificate

Indian Income Tax Act provides withholding of tax(TDS) on various payments like rent, professional fees, lottery winning, interest, property purchase consideration, etc. Tax withholding provision is prevalent in most countries having taxation on income and is based on the principle that tax is paid when it is earned than when assessed. It provides cash flow to the government throughout the year.

Income Tax Act provides for tax deduction at a specified rate on gross payment without considering whether the receiver has actual taxable income. If the deductee has lower taxable income or has loss and hence the tax deducted is in excess, he has two options, i.e.,

• To claim the excess TDS as a refund when filing a return of income or
• Apply for a lower TDS deduction Certificate, which allows the deductor to deduct TDS at a rate lower than the prescribed rate or NIL Rate.

In the case of payment to resident payees, the TDS provision under sections 192 to 194N is applicable. Different rates of deduction and separate thresholds are provided in various areas. Lower TDS certificate is given specific deductor with limit upto which it is applicable, hence it is deductor specific, not a blanket one applicable to any deductor.

Section 195 of the Income-tax is applicable for withholding taxes from payments to Non Residents. Unlike in the case of resident payees, where there is a threshold limit below which TDS is not applicable, there isn't a threshold applicable in the case of payment to non-residents. The provisions of DTAA with the country in which the non-resident is resident will determine the tax rate. The non-resident receiver can apply for a lower TDS deduction certificate. The deductor can deduct TDS at a lower rate mentioned in the certificate.

Provisions of section 195 apply in the case of a resident person making payment to a non-resident toward the purchase of Property in India. The TDS is applicable at 20% plus surcharge and Cess on the sale price of such property, which the property buyer must deduct from the selling price payable to the buyer. In case the application can be made by the seller to the Income-tax Officer for a lower TDS deduction certificate along with the following documents:

• Agreement to sell with a buyer
• TAN Numbers of the Buyers
• Computation of capital gain
• Supporting the cost of the property
• Three-year income Tax return copy of Non-Resident seller, or Affidavit that their income was below taxable limit
• Evidence in support of being non-resident for the preceding three years ( Passport Immigration stamping)

In the case of joint owners selling property, two separate applications need to be made. The department has an internal guideline to process the application within 30 days. Internally it is processed by an officer and sent for Additional or Joint Commissioners' approval; in case of the rate of deduction is less than 3%, the application has to be approved by the commissioner. Any proposed investment by the seller that is out of sale consideration entitled to a deduction from taxable capital gains is not considered by the department as evidence for the same can't be provided at the time of making the application

Tax authorities have now made it easier for Indian taxpayers to determine their refund status. You can visit the NSDL-TIN website www.tin-nsdl.com and click Status of Tax Refunds to see whether a refund is due to you.