CBDT issues Advisory to Deductors of TDS to validate section 197 Certification

The Central Board of Direct Taxes has issued an advisory wherein it has been pointed out that cases of huge default of ‘Short Deduction’ have been found on account of error in quoting of the number of certificates issued under section 197 of the Income Tax Act, 1961 .

The instance of wrong certificates issued under section 197 of the Income Tax Act normally arise when the deductor accepts a lower deduction certificate from deductee which has been manually issued by the assessing officer and the deductor notes the same in TDS statements that are filed quarterly .

CPC has provided the facility of validating the 197 certificate to the deductors and if the 19 certificate is not valid according to the norms of TRACES validation, it is the duty of the deductor to insist upon a certificate that has been generated by ITD system and it should possess a unique 10 digit number. This aims to decrease the number of generation of such default in “short deduction”.

The total procedure has been explained by CBDT in the advisory. This advisory also applies to certificates issued under section 195(2) and section 195(3) issued by international tax officers.

Certificate issued for Deduction of Tax at a lower or NIL Rate under section 197 or 197A:

Under section 197(1) of the Income Tax Act, 1961, a person who receives any income on which tax should be deducted at source according to the rates prescribed under sections 192, 193, 194 and 195 of the act can make an application in Form No. 13 to the Assessing Officer requesting to issue a certificate for deduction of TDS at a rate lower than that has been prescribed.

The Income Tax Act, 1961 provides that an Assessing Officer can issue a certificate for lower or no deduction of tax in favour of the deductee, if he is a resident or in favour of the deductor, where the deductee is a non-resident if he is satisfied that the total income of the deductee is justified for deduction of tax at a lower or nil rate.

The section also provides that such deduction shall be made according to the certificate until and unless the certificate has been cancelled by the Assessing Officer or the certificate has already expired, whichever is earlier.

The certificate can be issued for a portion of or the total previous financial year. It has also been provided that the certificate issued shall be valid for such period of the previous year as has been specified by the Assessing Officer unless the certificate is cancelled before the expiry of such period.

However the Certificate should be otherwise valid in connection with the PAN, Section and Rate which has been stated in the statement. Expired certificates should not be used.