Section 197 : Lower Deduction Certificate (LDC)

Introduction

The Section 197 Certificate, commonly known as the Lower Deduction Certificate (LDC), is an important provision under the Income Tax Act that allows taxpayers to receive income with Nil or reduced TDS. Taxpayers whose income is subject to TDS can apply for this benefit by submitting Form No. 13 to their jurisdictional Assessing Officer (AO).

The AO evaluates the application based on factors such as the taxpayer’s total income, projected earnings, and estimated tax liability. Once approved, the certificate permits TDS to be deducted at a Nil or lower rate on specified types of income.

This article explains what a Section 197 Certificate is, along with step-by-step guidance on obtaining and validating it. Auriga Accounting pvt. ltd. makes the Form 13 application and Section 197 Certificate process simple with expert support.

What is Section 197 under the Income Tax Act?

Section 197 of the Income Tax Act, 1961 applies in situations where the TDS deducted on a taxpayer’s income exceeds their actual tax liability. This provision allows a taxpayer to apply for a Lower Deduction Certificate (LDC) that authorizes TDS to be deducted at a reduced rate or at Nil rate.

To obtain this benefit, the taxpayer must submit Form 13 to their jurisdictional Assessing Officer (AO). The AO evaluates the application based on the taxpayer’s total income, projected earnings, and estimated tax liability. If satisfied, the AO issues a certificate permitting lower or Nil TDS for the financial year.

What is a Section 197 Certificate?

A Section 197 Certificate allows taxpayers to receive income after lower or Nil tax deduction at source. Normally, payers must deduct TDS at specified statutory rates before making payments. With an LDC, the taxpayer presents this certificate to the payer, who then deducts tax at the approved reduced rate or not at all.

This ensures that income is not unnecessarily reduced by excessive TDS, and helps the taxpayer avoid refund claims later.

Benefits of Obtaining a Section 197 Certificate

A Section 197 Certificate provides several advantages:

Improved Cash Flow: More income available upfront due to lower or Nil TDS.
Reduced Refund Hassle: Avoids delays and administrative processes involved in claiming tax refunds.
Better Financial Planning: Helps with accurate budgeting and cash-flow management.
Administrative Ease: Minimizes paperwork and simplifies tax compliance.
Increased Compliance: Ensures TDS is deducted correctly as per law.
Operational Efficiency: Speeds up transactions between payer and payee.
Enhanced Profitability: Retaining more income improves overall financial performance, especially for businesses.

Eligibility for a Section 197 Certificate

A taxpayer may apply for a Section 197 LDC if:

Their actual tax liability is lower than the TDS likely to be deducted.
They submit Form 13 as prescribed under Rule 28 of the Income-tax Rules.

Income Covered Under Section 197

Applicants can submit a Section 197 application for the following income types:

Salary
Interest on securities
Dividends
Other interest income (FDs, savings accounts, etc.)
Payment to contractors
Insurance commission
Lottery commission/remuneration/prizes
Brokerage or commission
Rent
Professional or technical service fees
Compensation on acquisition of immovable property
Income from investment funds
Income from securitization trusts
Income of non-residents taxable in India

Documents Required for Section 197 Certificate

To apply for an LDC, the following documents are needed:
Basic Documents
- Duly filled and signed Form 13
- Copy of PAN card
Income & Tax Details
- Estimated income for the current financial year
- Income computation for the last 3 years
- ITR copies with acknowledgements for the previous 4 years
- Assessment orders for the last 4 years (if applicable)
Business Documents (if applicable)
- Audited financial statements for the last 3 years
- Projected Profit & Loss account for the current year
Registration/Exemption Proof
- Certificates under Sections 11, 12, or 139(4C) for entities with exempt income under Section 10

How to Apply for a Section 197 Certificate Online

Step 1: Register on TRACES

Use your PAN to create an account on the TRACES portal.

Step 2: Submit Form 13 Online

Log in and go to Statements/Forms → Request for Form 13
Fill out the application for Nil/Lower TDS
Submit the form using DSC or EVC

Step 3: Assessment by Income Tax Department

The department reviews:

Estimated current-year income
Tax paid in earlier years
Pending tax liabilities
TDS already paid/deducted

Step 4: Issuance of Certificate

If eligible, the department issues:

A Nil or lower TDS certificate
Applicable for specific deductors and specific incomes
Valid until the end of the financial year, unless cancelled earlier

Form 13 Application – Detailed View

1. Applicant Information

Name (as per PAN)
PAN
AO details (Range, Ward/Circle, AO Number)
Nature of business/income

2. Contact Person Details

Details of the person authorized to handle queries regarding the application.

3. Income & Tax Details

Income for the last 3 years
Current year projections
Tax payments for previous years
Current-year TDS
Pending tax demands with AY, amount, and status
Tax audit defaults (Form 3CD) with explanations
Pending assessments or penalty proceedings
If applicable, details of receipts/accumulations under Rule 28AB(1)

4. TAN Details

Tax Deduction and Collection Account Number (TAN), if applicable.

5. Cumulative Tax Foregone

Relevant Income Tax section
Projected income
Number of parties involved
Normal vs. proposed lower TDS rate
Estimated tax foregone due to reduction
Details of any previous LDC issued

6. Deductor Details

For each payer:

Name (as per TAN records)
TAN
Address
Email
Expected amount receivable
Applicable TDS section

How to Validate a Lower Deduction Certificate Under Section 197

Follow these steps to validate a Section 197 Lower Deduction Certificate on the TRACES portal:

Step 1 – Log in to TRACES

Visit the TRACES portal and log in using your registered User ID and password.

Step 2 – Go to the Certificate Validation Section

After logging in, navigate to the “Statements/Payments” tab and select “197 Certificate Validation” from the dropdown menu.

Step 3 – Enter Certificate Details

On the validation page, provide the following information:

The 10-digit certificate number
The PAN of the taxpayer
The financial year for which the certificate was issued

Step 4 – View Certificate Details

Once you submit the information, the portal will display key certificate details, including:

Validity period
Approved lower or Nil TDS rate
Consumed amount (if applicable)

Validity Period of a Section 197 Certificate

A Section 197 certificate is generally valid only for the remaining portion of the financial year in which it is issued. In most cases, the certificate expires on March 31st of that financial year.
If you require a lower or Nil TDS rate for the next financial year, you must apply for a fresh certificate.

About the Author

Ravi

Ravi is a skilled legal writer who translates complex laws into clear, practical guidance. He empowers entrepreneurs to navigate their legal responsibilities with confidence, helping them build compliant and sustainable businesses.