All you need to know about Section 197 and 197A of the Income Tax Act 

Last Updated at: December 20, 2019
574
-All you need to know about Section 197 and 197A of the Income Tax Act

Worried about excess Tax Deduction at Source (TDS)? Unsure about how much tax has been deducted and how much can you claim as a refund?
Let us see in detail, the provisions of Section 197 and 197A and also how they are related to TDS.

What is TDS?

TDS or Tax Deducted at Source is a system wherein any person/entity who is liable to pay salaries, commissions, interest on investments. And also the others are bound to deduct a certain percentage of this income as tax before making such payments to the payee. This percentage of income that is deducted is called Tax Deducted at Source.

Purpose and Functioning of TDS

This system has been introduced by the Income Tax department. Moreover, it is to ensure that tax evasion is curbed as this is a kind of advance tax that the taxpayer is paying to the government.

Let us look at how TDS functions –

  • TDS percentage ranges from 1% to 30% and TDS from all your income sources for a financial year is consolidated in Form 26AS.
  • Paying advance tax as TDS has its own shortcomings as well. While for some, paying TDS could ease out the financial burden right at the time of filing income tax, there can be taxpayers whose income does not even fall in the taxable bracket or others whose tax liability could be less than what they might have paid as TDS.
  • For taxpayers who end up paying above their tax liabilities in the form of TDS, a refund for the excess amount can be initiated and claimed.
  • However, to help taxpayers falling in the above-mentioned categories, where there is no tax liability at all or where the tax liability is lesser in terms of their current rate of TDS, the Income Tax Law provides for an option under Section 197 of the Act where the taxpayer by way of an application, can obtain a certificate from the Assessing Officer (AO) for either a Nil or a low rate of TDS.

Where Does Section 197 the Income Tax Act Come In?

As mentioned above, Section 197 of the Income Tax Act provides for taxpayers with NIL TDS or less rate of TDS. However, it is applicable to apply for the same to get relief at the time of filing income tax. Indeed the form that they need to fill in and submit to the AO for this is Form 13.

Get free legal advice now

Who can apply for Rebate under Section 197

Listed below is the category of individuals falling under the following sections of taxable income who can apply under Section 197:

Any individual earning income as specified in Section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, Section 194-I, 194J, 194LA, 194LBB, 194LBC, 195 of the Income Tax Act such as income by way of salary, dividends, insurance commission, rent, etc. can apply for TDS exemption/lower rate.

How to claim lower or Nil TDS

  1. To claim lower/No TDS, the assessee needs to file an application in Form 13 with the Income Tax/Assessing Officer. The following details are required to be furnished in this Form 13:
  • Name and PAN of the taxpayer/assessee
  • Reason/s for being eligible for the claim
  • Details of the tax eligibility as per the existing income tax slabs
  • The details of payment of tax for the last three years
  • Details of the advanced tax paid
  • Amount deducted/collected as TDS for the current assessment year
  1. The application is disposed of by the AO within 30 days.
  2. Upon being satisfied with the details furnished by the assessee, the AO issues a certificate which the assessee can attach to the tax invoice to justify his claim for a lower tax deduction.

Details to be validated by the deductor in the certificate issued by the AO

To be able to process the assessee’s request for Low/No TDS, the deductor needs to validate the following details in the certificate:

  • PAN of the deductee as it is on the certificate
  • Certificate number
  • The validity of the certificate with the relevant financial year
  • Validate the threshold limit on the certificate
  • Upon validation, the AO raises Flag A in the statement for issuing certificate u/s 197 and Flag B for a certificate under section 197A.

Points to Note:

The certificate once issued is valid for that particular financial year from the date of issue and would cease to exist only in case the AO cancels the same.

Also, it is advisable to apply for the TDS relaxation at the beginning of the on-going financial year even though there is no deadline for making the application under section 197.

Section 197A

Section 197A provides for any individual, not being a firm or a company, to apply for an exemption of TDS deduction on his/her income from interest on deposits with the banks in India if such income is below the taxable limit.

How to File for TDS

Usually, the interest income of an individual exceeding Rs. 40,000 a year, with all the deposits with various branches included in this calculation, earns a TDS deduction.

Forms 15G and H

As per Section 197A, individuals below the age of 60 years can submit a declaration utilizing Form 15G. Whereas the individuals above the age of 60 years (senior citizens) submit using Form 15H.  Moreover, it is to submit a declaration from the exemption of TDS on their interest income. These forms can also be submitted to request for TDS exemption on withdrawal of EPF, Insurance commission earned rental income and income from corporate bonds and post office deposits.

 

All you need to know about Section 197 and 197A of the Income Tax Act 

574

Worried about excess Tax Deduction at Source (TDS)? Unsure about how much tax has been deducted and how much can you claim as a refund?
Let us see in detail, the provisions of Section 197 and 197A and also how they are related to TDS.

What is TDS?

TDS or Tax Deducted at Source is a system wherein any person/entity who is liable to pay salaries, commissions, interest on investments. And also the others are bound to deduct a certain percentage of this income as tax before making such payments to the payee. This percentage of income that is deducted is called Tax Deducted at Source.

Purpose and Functioning of TDS

This system has been introduced by the Income Tax department. Moreover, it is to ensure that tax evasion is curbed as this is a kind of advance tax that the taxpayer is paying to the government.

Let us look at how TDS functions –

  • TDS percentage ranges from 1% to 30% and TDS from all your income sources for a financial year is consolidated in Form 26AS.
  • Paying advance tax as TDS has its own shortcomings as well. While for some, paying TDS could ease out the financial burden right at the time of filing income tax, there can be taxpayers whose income does not even fall in the taxable bracket or others whose tax liability could be less than what they might have paid as TDS.
  • For taxpayers who end up paying above their tax liabilities in the form of TDS, a refund for the excess amount can be initiated and claimed.
  • However, to help taxpayers falling in the above-mentioned categories, where there is no tax liability at all or where the tax liability is lesser in terms of their current rate of TDS, the Income Tax Law provides for an option under Section 197 of the Act where the taxpayer by way of an application, can obtain a certificate from the Assessing Officer (AO) for either a Nil or a low rate of TDS.

Where Does Section 197 the Income Tax Act Come In?

As mentioned above, Section 197 of the Income Tax Act provides for taxpayers with NIL TDS or less rate of TDS. However, it is applicable to apply for the same to get relief at the time of filing income tax. Indeed the form that they need to fill in and submit to the AO for this is Form 13.

Get free legal advice now

Who can apply for Rebate under Section 197

Listed below is the category of individuals falling under the following sections of taxable income who can apply under Section 197:

Any individual earning income as specified in Section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, Section 194-I, 194J, 194LA, 194LBB, 194LBC, 195 of the Income Tax Act such as income by way of salary, dividends, insurance commission, rent, etc. can apply for TDS exemption/lower rate.

How to claim lower or Nil TDS

  1. To claim lower/No TDS, the assessee needs to file an application in Form 13 with the Income Tax/Assessing Officer. The following details are required to be furnished in this Form 13:
  • Name and PAN of the taxpayer/assessee
  • Reason/s for being eligible for the claim
  • Details of the tax eligibility as per the existing income tax slabs
  • The details of payment of tax for the last three years
  • Details of the advanced tax paid
  • Amount deducted/collected as TDS for the current assessment year
  1. The application is disposed of by the AO within 30 days.
  2. Upon being satisfied with the details furnished by the assessee, the AO issues a certificate which the assessee can attach to the tax invoice to justify his claim for a lower tax deduction.

Details to be validated by the deductor in the certificate issued by the AO

To be able to process the assessee’s request for Low/No TDS, the deductor needs to validate the following details in the certificate:

  • PAN of the deductee as it is on the certificate
  • Certificate number
  • The validity of the certificate with the relevant financial year
  • Validate the threshold limit on the certificate
  • Upon validation, the AO raises Flag A in the statement for issuing certificate u/s 197 and Flag B for a certificate under section 197A.

Points to Note:

The certificate once issued is valid for that particular financial year from the date of issue and would cease to exist only in case the AO cancels the same.

Also, it is advisable to apply for the TDS relaxation at the beginning of the on-going financial year even though there is no deadline for making the application under section 197.

Section 197A

Section 197A provides for any individual, not being a firm or a company, to apply for an exemption of TDS deduction on his/her income from interest on deposits with the banks in India if such income is below the taxable limit.

How to File for TDS

Usually, the interest income of an individual exceeding Rs. 40,000 a year, with all the deposits with various branches included in this calculation, earns a TDS deduction.

Forms 15G and H

As per Section 197A, individuals below the age of 60 years can submit a declaration utilizing Form 15G. Whereas the individuals above the age of 60 years (senior citizens) submit using Form 15H.  Moreover, it is to submit a declaration from the exemption of TDS on their interest income. These forms can also be submitted to request for TDS exemption on withdrawal of EPF, Insurance commission earned rental income and income from corporate bonds and post office deposits.

 

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