Tax Deducted at Source is an important mechanism for income tax collection, which allows the government to collect a taxpayer’s income tax from the taxpayer at the time that the taxpayer earns income, rather than at a later time. Sometimes, the TDS deducted is higher than the recipient’s actual tax liability on that income. In this case, taxpayers can apply for a lower or nil deduction of TDS by making an application in Form 13 in accordance with Section 197 of the Income Tax Act,1961.
This blog will cover what TDS Form 13 is, who can make an application, how to apply online, the documents and data required, and the advantages of receiving it.
Introduction
TDS ensures the timely collection of taxes, but in certain cases, it may lead to hardship for taxpayers who have lower incomes or exemptions available. For example –
- A consultant with a lower taxable income may face a standard 10% TDS deduction, even though their final tax liability is lower.
- A company receiving payments may be subject to higher TDS rates despite carrying forward losses.
To address such situations, the Income Tax Department allows taxpayers to request a certificate for lower or nil deduction of TDS. This application is made through Form 13 and, once approved, the payer will deduct TDS at the reduced rate or not at all.
What is TDS Form 13?
TDS Form 13 is an application filed based on Section 197 of the Income Tax Act. The form is submitted to an Assessing Officer or through the TRACES portal to obtain a certificate for a reduced or nil deduction of TDS.
Key points –
- Applicable to both individuals and businesses.
- Ensures deduction aligns with the actual tax liability.
- Prevents blockage of working capital due to excess TDS.
Who Can Apply for Form 13?
Any taxpayer (resident or non-resident) who expects that their total tax liability will be less than the TDS usually deducted can apply. This includes –
- Individuals: Freelancers, professionals, and salaried employees with exemptions.
- Companies/Firms: Businesses with lower profits had losses.
- Trusts/NGOs: Receiving donations or grants is exempt from tax.
- Non-Residents: Foreign companies receiving payments from India under DTAA provisions.
When Should You Use Form 13?
You should apply when –
- Your actual tax liability is lower due to deductions/exemptions.
- You have carried forward business losses.
- You qualify for exemptions under Double Taxation Avoidance Agreements (DTAA).
- You receive interest, rent, commission, or contract payments subject to high TDS but expect lower final liability.
Documents Required for Form 13
To support the application, the following documents are generally required –
- PAN card of the applicant
- Financial statements of the previous 3 years
- Estimated income statement for the current year
- Details of income and expenses
- Details of TAN of deductors and nature of payments
- Copy of Income Tax Returns (ITR) of past 2–3 years
- Proof of exemptions/deductions claimed
- Tax audit report (if applicable)
How to Apply for TDS Form 13 (Online Process)
1. Login to TRACES Portal
- Visit https://www.tdscpc.gov.in
- Login using your PAN/TAN credentials.
2. Navigate to ‘Form 13 Application’
- Go to Statements / Forms → Request for Form 13.
3. Fill in the Application
- Enter personal and business details.
- Provide income and expenditure details for the current year.
- Mention TAN of deductors and type of income (interest, commission, rent, etc.).
4. Upload Documents
- Upload supporting financial documents in PDF format.
5. Submit and Verify
- Authenticate the form using DSC (Digital Signature Certificate) or EVC.
6. Track Status
- After submission, you will receive an Application Reference Number (ARN).
- The Assessing Officer reviews and may request clarifications.
7. Issue of Certificate
- Once approved, a Lower or Nil Deduction Certificate is issued.
- This certificate must be shared with the deductor (payer) for compliance.
Benefits of Using Form 13
- Avoid Excess TDS: Prevents unnecessary cash flow issues.
- Better Working Capital: Ensures businesses retain funds for operations.
- No Need for Refund Claims: Saves time otherwise spent on refund applications.
- Certainty in Tax Compliance: Provides legal backing for lower TDS.
- Applies to Multiple Deductors: One certificate can cover different clients/payers.
Common Mistakes to Avoid
- Delayed application leading to continued higher TDS.
- Incomplete financial statements or missing documents.
- Incorrect PAN/TAN details in the form.
- Not sharing the approved certificate with the deductor.
- Assuming automatic application, the certificate must be renewed every financial year.
Legal Considerations
- Form 13 is administered under Section 197 of the Income Tax Act, 1961.
- A certificate usually has a validity of one financial year.
- Tax authorities will review past compliance, projected income and any past refund history.
- If the taxpayer misrepresents income, the application will be denied and penalties may be applicable.
- Non-resident applicants must ensure they comply with all provisions under the DTAA.
Conclusion
The TDS Form 13 is a useful alternative for taxpayers to match their actual tax liability versus the TDS tax deducted from the non-residents’ income or business in India. By seeking a lower deduction or a nil TDS deduction certificate, the taxpayer can eliminate unnecessary funds flowing to tax deductions, and ultimately receive tax refunds if applicable, and manage their cash flows better.
If the taxpayer is in a continuous position of having a higher TDS deducted than their taxable income, applying for Form 13 would be prudent. The taxpayer should make sure they have filled it out accurately and filed it on time in order to maximise the benefit of this opportunity.
Related Service
References
The Income Tax Rules, 1962
The Income Tax Act of 1961
https://www.incometax.gov.in/
https://incometaxindia.gov.in/
