Lower / Nil Deduction of Tax Certificates

What is a lower or nil deduction certificate?

When your customers or tenants deduct TDS at the standard rate, but your actual tax for the year will be much lower — because of losses, low margins, or exemptions — you end up waiting months for a refund. A lower or nil deduction certificate, issued by the income-tax department, tells payers to deduct at a lower rate, or not at all.

Non-residents can apply for a similar certificate on payments to them. Individuals with income below the taxable limit can often use simpler self-declarations instead.

The key terms

A few routes exist, depending on who you are:

Lower deduction certificate

A certificate from the Assessing Officer specifying a lower or nil TDS rate for payments from named payers, for a financial year.

Application

Made online on TRACES, with estimated income, tax computation, and details of expected payments.

Validity

Certificates are issued for a financial year, usually for specific payers and up to a specified amount.

Non-resident certificates

Non-residents can apply for a certificate specifying the portion of a payment chargeable to tax in India.

Forms 15G and 15H

Self-declarations by individuals whose total income is below the taxable limit, so banks don't deduct TDS on interest. 15H is for senior citizens.

Basis of the rate

The rate is based on your estimated tax for the year, past returns, and any outstanding demands.

New Act

For payments from 1 April 2026, lower deduction certificates are governed by the Income-tax Act, 2025, with its own forms.

Why it matters

Excess TDS is money locked away until your refund arrives:

Working capital

For low-margin businesses, excess TDS can tie up a large share of working capital.

Refund delays

Refunds arrive only after the return is processed, often more than a year after the deduction.

Loss-making years

Businesses with losses or carried-forward losses may owe little or no tax despite heavy TDS.

Non-residents

Foreign parties may otherwise suffer tax on the gross amount, when only part is taxable in India.

Individuals

Retirees and students can avoid TDS on interest with a self-declaration.

Payer confidence

Payers are protected when they deduct at the certified rate.

Planning ahead

Applying early in the year gives the most benefit.

Who is this for?

A certificate isn't granted automatically. It depends on your estimates, past compliance, and any pending demands.

Options compared

Which route fits depends on the payee:

What we'll need from you

Projected income

Estimated income and tax for the current year.

Past returns

Returns and computations for recent years.

Expected payments

Payers, their TANs, and expected amounts.

Year-to-date figures

Income and TDS so far this year.

Demand status

Details of any outstanding tax demands.

Non-resident documents

Tax residency certificate and Form 10F for treaty claims.

Apply as early in the financial year as possible, since certificates generally apply only from when they're issued.

How we apply

A typical application runs like this:

1. 1

   Assess eligibility

   We compare expected TDS with projected tax to see if an application makes sense.

2. 2

   Prepare projections

   Income, tax, and expected payments are projected and documented.

3. 3

   File on TRACES

   The application is filed online with supporting documents.

4. 4

   Respond to queries

   Questions from the Assessing Officer are answered promptly.

5. 5

   Receive the certificate

   The certificate is issued for the approved rate, payers, and amounts.

6. 6

   Share with payers

   Payers receive the certificate so they apply the lower rate.

After the certificate is issued

A few things keep the certificate working:

Payers apply it

Payers should apply the certified rate from the date they receive it.

Watch the limit

Once payments exceed the certified amount, standard TDS applies again.

New payers

Payers not named in the certificate deduct at the normal rate.

Reconcile credits

Check Form 26AS reflects deductions at the certified rate.

Reapply each year

Certificates are annual — apply again for the next year early.

Stay compliant

Filing returns and clearing demands help future applications.

Benefits and responsibilities