📌 What Is a Lower Tax Deduction Certificate?
A Lower Tax Deduction Certificate (sometimes called a lower TDS certificate) is issued by the Income Tax Department when the estimated tax liability justifies a reduced rate of TDS or no TDS at source. It ensures the payer deducts tax at a lower rate than the default specified for non-residents.
📋 Eligibility Criteria
Your company can apply if:
✅ It does not have a PE in India and the income in India is taxable.
✅ Estimated tax liability on Indian income is lower than the default TDS rate.
✅ PAN (Permanent Account Number) is available.
✅ You have supporting documents like past tax returns, income computations, and contractual details.
📝 Documents You’ll Need
Prepare these before applying:
- Copy of PAN of the foreign entity
- Contract or agreement showing income from India
- Details of Tax Deductor’s TAN (Tax Deduction Account Number)
- Estimated income and tax liability computation
- Previous years’ income & tax returns (if available)
💻 Step-by-Step Application Process
1. Login to TRACES Portal
Go to the Income Tax Department’s TRACES portal and log in using your PAN and credentials (register if new).
2. Find Form 13
Navigate to “e-File → Form 13 – Application for Lower/Nil Deduction Certificate.”
3. Input Company & Income Details
Complete Form 13:
✔ Foreign entity details (PAN, address)
✔ Deductor’s details (TAN, name)
✔ Estimated income from India
✔ Tax liability calculation
✔ TDS section under which tax would ordinarily be deducted
4. Upload Supporting Documents
Attach income proofs, contracts, computations, tax returns, and other evidence to justify a lower rate.
5. Verify & Submit
Verify with a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) and submit.
6. Tracking & Assessment
You’ll get an acknowledgment. The jurisdictional Assessing Officer (AO) reviews the application and may ask for clarifications.
7. Issue of Certificate
If approved, the AO issues the certificate with the approved lower rate or nil rate and validity period, usually up to the end of the financial year.
8. Give Certificate to Deductor
Share the issued certificate with the payer in India so they can deduct TDS at the approved rate.
⏱ Typical Timelines & Validity
- Processing usually takes 4–6 weeks but can vary.
- The certificate is generally valid until the end of the financial year or as mentioned on it.
✅ Final Tips for Success
✔ Apply before the first payment in the year to avoid excess TDS.
✔ Submit complete and accurate documentation to minimize queries from the AO.
✔ Renew annually if you want continued benefit in subsequent years.
⚠️ Disclaimer
This blog is for informational purposes only and doesn’t constitute legal or tax advice. Tax laws and procedures can change; always verify with the Income Tax Department and consult a qualified tax professional before applying.