Lower or Nil TDS Certificate: Section 197 Is Now Section 395 (Form 128)
If tax is being deducted from your income at a rate far higher than the tax you will actually owe, you do not have to wait until you file a return to get that money back. The Income-tax Act lets you ask the Assessing Officer, in advance, to certify that TDS on your receipts should be deducted at a lower rate or not at all.
The provision that most people still know as Section 197 now sits at Section 395 of the Income-tax Act, 2025, which took effect from 1 April 2026. The relief is the same. The section number, the form number and the rule reference have all changed.
What changed on 1 April 2026
| Position | Old (Income-tax Act, 1961) | Current (Income-tax Act, 2025) |
| Lower or nil TDS certificate | Section 197 | Section 395(1) |
| Lower TCS certificate | Section 206C(9) | Section 395(3) |
| Application form | Form 13 | Form No. 128 |
| Rule | Rule 28 / 28AA | Rule 213 of the Income-tax Rules, 2026 |
| Self-declaration in place of a certificate | Section 197A, Forms 15G and 15H | Section 393(6), single Form No. 121 |
Two practical consequences follow. First, a certificate already issued under the old Section 197 continues to be valid for payments and credits made on or after 1 April 2026 for the period it covers, so nobody needs to reapply mid-certificate. Second, fresh applications must now be made in Form No. 128, and a filing that still quotes the old section codes will not validate.
Who this actually helps
A lower deduction certificate is worth applying for whenever the statutory TDS rate is visibly out of proportion to your real tax liability. In our practice, the recurring cases are these.
Non-residents selling Indian property
This is the single largest category. On a sale by a non-resident, tax is deducted on the entire sale consideration, not on the capital gain. A seller whose actual long-term capital gain is a small fraction of the sale value can find a very large sum withheld and locked up until a refund is processed a year later. A certificate fixes the deduction to the tax actually payable on the gain.
Businesses running losses or carrying forward losses
A company with brought-forward losses may have no tax payable at all for the year, yet still suffer TDS on every contract receipt, professional fee and interest credit. The certificate stops working capital from being parked with the department.
Exporters and service companies with treaty relief
Where a tax treaty caps the rate, or where the receipt is not chargeable to tax in India at all, a certificate removes the argument at source rather than after the fact.
Businesses in a loss-making or early-growth year
Startups and newly incorporated subsidiaries frequently invoice well before they are profitable. TDS at the full statutory rate on those invoices is money the business needs and will only recover much later.
Senior citizens and small taxpayers
Where total income is below the taxable threshold, a declaration under Section 393(6) in the new Form No. 121 is usually the simpler route than a full certificate application.
Who can apply
Any person can apply under Section 395(1). That includes residents and non-residents, and includes companies, partnership firms and LLPs. Unlike the declaration route, there is no restriction based on status, age or entity type.
The applicant is the recipient of the income, not the deductor. The certificate is then given to the deductor, who applies the rate stated in it.
How the application works
- Establish the estimated income and tax for the year. The Assessing Officer will compare the tax you project against the TDS that would otherwise be deducted. This computation is the heart of the application, and a weak one is the most common reason for rejection.
- Log in to the TRACES portal and open the request for Form No. 128 under the file-forms path.
- Complete the form online with the estimated income, the projected tax liability, details of every deductor, and the nature and amount of each payment expected during the year.
- Upload supporting documents: returns and computations for the preceding years, audited financial statements, projected accounts for the current year, the agreement or contract generating the receipt, and in a property sale, the sale agreement and the cost and improvement records that establish the gain.
- E-verify and submit. The application is routed electronically to the jurisdictional Assessing Officer through the Director General of Income-tax (Systems).
- Respond to queries. The officer will usually raise at least one query. Prompt, complete replies are what determine whether the certificate arrives in weeks rather than months.
What the certificate does and does not do
A certificate is specific. It names the deductor or deductors, the nature of the payment, the rate and, in most cases, a ceiling on the amount covered. A deductor not named in it cannot rely on it. Once the ceiling is exhausted, the normal rate resumes.
It is also prospective. It applies to payments made after it is issued, and it does not refund TDS already deducted. That earlier deduction can only be recovered through your return. This is why the application should be made early in the financial year rather than after the deductions have started to hurt.
The certificate is valid only for the tax year for which it is issued, or the shorter period stated in it, and it can be cancelled by the Assessing Officer before expiry.
Common reasons applications fail
- The projected income is not supported by any documentation the officer can test.
- Earlier returns are unfiled, or there are outstanding demands on the record.
- TDS reconciliation does not tie to the annual information statement.
- Deductor details, especially TAN, are wrong or incomplete, which makes the certificate unusable even if granted.
- The application is filed so late in the year that most of the deduction has already happened.
Timing
Apply at the start of the tax year, or as soon as the transaction is contemplated. For a property sale by a non-resident, apply once the agreement to sell is signed and before the payment schedule begins. There is no statutory bar on applying mid-year, but every month of delay is a month of over-deduction that can only be undone through a refund.
How TAXAJ handles this
We prepare the income and tax projection that the application stands on, assemble the documentary support, file Form No. 128, and handle the Assessing Officer queries through to issue. For non-resident property sales we also compute the capital gain, including indexation where it is still available, so the rate applied for is defensible rather than optimistic.
If you are a non-resident selling Indian property, start with our NRI tax filing service. For companies and firms, this usually sits alongside business tax filing and ongoing compliance support. Individuals can start at income tax filing.
Book a consultation to check whether a certificate is worth applying for in your case, or sign in at the TAXAJ client portal to start the application.
Frequently asked questions
Does an existing Section 197 certificate still work after 1 April 2026?
Yes. A certificate issued under the old Section 197 remains valid for payments and credits on or after 1 April 2026, for the period and limits it specifies.
Is there a fee to apply?
The department does not charge a fee for the application itself.
Can a deductor apply on the recipient behalf?
No. The application is made by the person receiving the income. The deductor simply acts on the certificate once it is produced.
What if the certificate is rejected?
You can file a fresh application with better support. In the meantime, TDS continues at the normal rate and the excess is claimed as a refund in the return.
Does this cover TCS as well?
Yes. Section 395(3) provides for a lower collection certificate, and the same Form No. 128 is used.
This article states the law as it applies from 1 April 2026 under the Income-tax Act, 2025. It is general information, not advice on a specific transaction. Please take advice on your own facts before acting.
