Let’s imagine a situation wherein you are an entrepreneur.
- You render services to your client.
- Raise an invoice on him.
- He deducts tax at source (TDS) at the applicable rate of tax.
- And issues a Certificate at the end of financial year for you to either adjust the same against your tax liability or to claim refund if there is no tax liability for you.
In case you have a tax liability, you adjust this TDS against your actual tax liability and pay off the balance to the Income Tax Department.
Suppose, if you don’t face any tax liability, then you claim the entire TDS as refund while filing the Income Tax Return.
No one guarantees how long it would take to receive the tax credit from Income Tax Department.
This is a cash burden for businesses, since the client deducts tax at source during the financial year, and when you actually don’t have a tax liability.
Is there any solution to get rid of this?
Yes, there is a solution. The Income Tax Department grants exemption for those who face this problem consecutively for many years. The exemption is either for deducting the tax at lower rates or complete exemption of TDS.
Procedure to follow:
- Apply to the Income Tax Department in Form No. 13 for granting the permission. Template of this Form is appended here below. If you want to download <CLICK HERE >
- After scrutiny, the Assessing Officer will issue you a Certificate
- You can attach a copy of this certificate along with the invoice when you raise on your client
- Your client will NOT deduct TDS or will deduct a lower TDS (according the permission granted by the Assessing Officer in the certificate)
- The certificate will have validity and hence, till that time you can use this for requesting your clients not to deduct TDS / to deduct a lower TDS.Certificate for deduction of tax at lower rates / non-deduction::Section 197 of the Income Tax Act, 1961 reads as follows:
Where, in the case of any income or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194-H, 194-I, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in Form No.13, give to him such certificates as may be appropriate.
Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. The board has clarified vide Circular No. 774, dated 17.3.1999 that such certificate shall apply only in respect of payment or credit made after the date of such certificate.
Further, the Board may, having regard to the convenience of assesses and the interests of revenue by notification in the official Gazette, make rules specifying the cases in which, and circumstances under which, an application may be made for the grant of a certificate and conditions under which such certificate may be granted.
