New IT Act 2025 — Knowledge Bank

Certificates

Section 395 — Certificates

Old Act equivalent: Section 197 of IT Act 1961 Sub-part: B.—Deduction and collection at source

Statutory Text

  1. (1) Where tax is required to be deducted on any income or sum under this Chapter, then subject to the rules made under this Act,— (a) the payee may make an application before the Assessing Officer for deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be; and (b) the Assessing Officer on being satisfied that the total income of the payee justifies deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be, shall issue to him a certificate as appropriate; and (c) when a certificate is issued under clause (b) or sub-section (6), as the case may be, the person responsible for paying the income or sum shall deduct the tax at the rate specified in such certificate, or deduct no income-tax, as the case may be, till its validity.

(2)(a) The person responsible for paying to a non-resident any sum as mentioned in section 393(2) (Table: Sl. No. 17), may make an application to the Assessing Officer in such form and manner as may be prescribed, where he considers that the whole of such sum would not be chargeable in the case of the recipient; (b) the application under clause (a) shall be for determination of the appropriate proportion of the sum chargeable to tax, by the Assessing Officer in the manner as may be prescribed; and (c) when the determination is made by the Assessing Officer as per clause (b), the tax shall be deducted under section 393(2) (Table: Sl. No. 17) only on that proportion of sum which is chargeable to tax under the Act.

(3) Where tax is required to be collected on any amount under this Chapter, then subject to the rules made under this Act,— (a) the buyer or licensee or lessee may make an application before the Assessing Officer for collection of tax at a lower rate; (b) the Assessing Officer on being satisfied that the total income of the buyer or licensee or lessee justifies collection of tax at a lower rate, shall issue to him a certificate as may be appropriate; and (c) when a certificate is issued under clause (b), the person responsible for collecting tax shall collect it at the rates specified in such certificate till its validity.

(4)(a) Every person deducting or collecting tax shall issue a certificate to the deductee or collectee, as the case may be, specifying— (i) the amount of tax that has been deducted or collected; (ii) the rate at which tax has been deducted or collected; and (iii) any other particulars, as may be prescribed, within such period as may be prescribed; (b) an employer referred to in section 392(2)(a) shall issue a certificate to the employee, in respect of whose income payment of tax has been made by the employer, that the tax has been paid to the Central Government, and specify— (i) the amount of tax so paid; (ii) the rate at which tax has been paid; and (iii) any other particulars, as may be prescribed, within such period, as may be prescribed.

(5) The Assessing Officer may cancel the certificate granted under sub-section (1) or (3) after giving reasonable opportunity to the applicant.

(6) The application referred to in sub-section (1)(a) may also be filed before the prescribed income-tax authority, subject to such conditions as may be prescribed, and such authority on electronic verification of the contents of the application, may— (a) either issue a certificate for deduction of income-tax at lower rate or no deduction of income-tax; or (b) reject such application on account of non-fulfilment of the prescribed conditions or on account of the application being incomplete.

Sub-sections

Sub-section (1)

Lower/nil TDS certificate — payee applies to AO; AO issues certificate if satisfied that total income justifies it; payer deducts at certified rate till validity.

Sub-section (2)

Non-resident payments under section 393(2) (Table: Sl. No. 17) — payer applies to AO for determination of chargeable proportion; TDS only on the chargeable portion.

Sub-section (3)

Lower TCS certificate — buyer/licensee/lessee applies to AO; AO issues certificate if satisfied; collector collects at certified rate till validity.

Sub-section (4)

Obligation on every deductor/collector to issue certificate to deductee/collectee specifying amount deducted/collected, rate, and prescribed particulars within prescribed time. Special provision for employer paying tax on non-monetary perquisites under section 392(2)(a).

Sub-section (5)

AO may cancel certificate under sub-section (1) or (3) after giving reasonable opportunity of being heard to the applicant.

Sub-section (6)

Electronic filing of lower/nil TDS application before prescribed income-tax authority (alternative to AO under sub-section 1). Authority may issue certificate or reject on non-fulfilment of conditions or incomplete application.

Provisos

None.

Explanations

None.

Tables

None.

Key Structure

  • Applies to: Any payee seeking lower/nil TDS; buyer/licensee/lessee seeking lower TCS; payer to non-resident seeking determination of chargeable proportion; every person deducting or collecting tax (certificate issuance obligation).
  • Conditions: AO must be satisfied that total income justifies lower/nil rate; for non-resident — determination of proportion chargeable to tax; electronic filing subject to prescribed conditions.
  • Time limits: Certificate valid till its stated validity period; AO may cancel after giving reasonable opportunity; TDS/TCS certificates to deductee/collectee within prescribed period.
  • Monetary limits: None specified.
  • Exceptions: Sub-section (6) allows electronic filing with prescribed authority as an alternative to AO application.

Cross-References

  • s392 — salary TDS; employer paying tax on perquisites under sub-section (2)(a).
  • s393 — TDS on non-salary payments; NR payments under Table Sl. No. 17.
  • s394 — TCS provisions for which lower collection certificate applies.
  • s397 — compliance and reporting obligations.

Amendment Notes

Sub-section (6) — electronic filing of lower/nil TDS application before prescribed income-tax authority — noted as inserted provision.

Practical Notes

  • This section consolidates old sections 197 (lower TDS certificate), 195(2)/(3) (NR proportion determination), 203 (TDS/TCS certificate to deductee), and related provisions into a single comprehensive section.
  • The electronic filing route under sub-section (6) is an alternative to the traditional AO application — practitioners should check which route is more efficient for their jurisdiction.
  • AO’s power to cancel under sub-section (5) requires mandatory hearing — any cancellation without opportunity is liable to be set aside.
  • For non-resident payments, sub-section (2) allows the payer to seek determination of chargeable proportion — this is critical for composite contracts where only part of the consideration is taxable in India.
  • TDS/TCS certificates (sub-section 4) correspond to old Form 16/16A/27D — practitioners must ensure timely issuance within the prescribed period.

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