If tax is being deducted from your receipts at a rate higher than the tax you will actually owe for the year, the excess is not lost, but it is locked up. You recover it only after you file your return and the refund is processed, which can be several months after the money left your hands. A lower deduction certificate closes that gap at the source.
The certificate is an authorisation issued by the Assessing Officer that permits your payer to deduct tax at a reduced rate, or at nil, instead of the rate the Act would otherwise prescribe. Once it is in force the payer is not exercising discretion: Section 395(1)(c) requires the person paying to deduct at the rate specified in the certificate, or to deduct nothing at all, for as long as the certificate is valid.
It is important to be clear about what the certificate is not. It is not an exemption and it does not reduce your tax liability by a single rupee. Your final liability for the tax year is computed in the return exactly as it would have been. What changes is timing: instead of overpaying through the year and waiting for a refund, you pay closer to the correct amount as you go. It is a cash flow instrument, not a tax saving.
Applying is optional. If you do nothing, tax is deducted at the normal rate and the excess is claimed as a refund when you file your income tax return. The certificate simply removes the wait.
The Income-tax Act, 2025 came into force on 1 April 2026 and repealed the Income-tax Act, 1961. Every section number, rule number and form number in this area changed. The substance did not. The Income Tax Department has published a mapping of the old references to the new ones, and the table below reproduces it.
| Position under the 1961 Act | Position from 1 April 2026 |
|---|---|
| Application form: Form No. 13 | Application form: Form No. 128 |
| Lower or nil deduction of TDS: Section 197 | Lower or nil deduction of TDS: Section 395(1) |
| Lower collection of TCS: Section 206C(9) | Lower collection of TCS: Section 395(3) |
| Rules 28, 28AA, 28AB, 29, 37G and 37H of the Income-tax Rules, 1962 | Rule 213 of the Income-tax Rules, 2026 |
| Self declaration: Form 15G and Form 15H under Section 197A | Self declaration: Form No. 121 under Section 393(6) |
| Financial year | Tax year |
Six rules of the 1962 Rules have been folded into a single rule. Rule 213 now carries the application requirement, the factors the Assessing Officer weighs, the additional conditions for non-profit organisations and for dividend income, the validity provision, and the mechanism for applicants with a very large number of payers.
Yes, in one defined situation. A certificate issued under Section 197 of the Income-tax Act, 1961 remains valid for payments or credits made on or after 1 April 2026, provided it was issued for lower or nil deduction in respect of projected receivables for tax year 2026-27. It does not lapse merely because the new Act has taken effect.
A certificate issued for projected receivables of an earlier year does not carry forward. Neither does one whose specified period has already expired, or whose specified amount has already been exhausted. If you are relying on a certificate issued before April 2026, check the period and the amount stated on the face of it before you assume your payer can still apply the reduced rate.
Any person, resident or non-resident, may apply. There is no restriction by entity type: individuals, Hindu undivided families, firms, limited liability partnerships, companies, trusts and registered non-profit organisations are all eligible. The question is not who you are, it is whether your estimated total income for the tax year justifies a rate lower than the statutory one.
Two mechanisms exist and they are frequently confused. Getting the choice wrong wastes weeks.
The self declaration route. Runs through Section 393(6). For a tax year beginning on or after 1 April 2026 the declaration is furnished in Form No. 121, which replaces the earlier Form 15G and Form 15H. It is made directly to the payer, with no Assessing Officer and no waiting period. Eligibility is unchanged in substance: it is open to a resident individual, and to certain other persons excluding companies and firms, subject to the prescribed income thresholds, with the senior citizen variant available to a resident individual aged 60 or above.
The certificate route. Runs through Section 395 and Form No. 128. It requires an application, an Assessing Officer to be satisfied, and a certificate to be issued. It is the only route available to a company or a firm. It is also the route you need where the amounts are substantial, where the income is business or professional income rather than interest or dividend, or where you are a non-resident.
The short test: if a simple declaration to the payer will do the job and you are eligible to make one, make it. Form 128 is for everything else.
Rule 213(3) sets out four factors the Assessing Officer takes into consideration before issuing a certificate.
Two points follow from this list and they explain most rejections. First, an outstanding demand under the old Act still counts against you — the repeal did not wipe the slate, and where one is blocking an application it has to be cleared first, which is an income tax notice job rather than a filing one. Second, the four year filing and payment history is examined, so gaps in past compliance weaken an application even when the current year estimate is sound.
Additional conditions apply in two cases. Where the applicant is a registered non-profit organisation, or a specified entity referred to in Section 263(9)(c), Rule 213(4) requires that the entity is approved for exemption both on the date of application and on the date the certificate is granted, and that returns of income have been furnished for the last four tax years for which those returns fell due on or before the application date. Where the certificate is sought in respect of dividend income, Rule 213(5) requires that the shares are shares in public companies and that they stand in the applicant name and are beneficially owned by the applicant, or are held on behalf of a registered non-profit organisation whose dividends are exempt.
Form No. 128 is furnished electronically on the TRACES portal at www.tdscpc.gov.in. There is no offline route, and it is not filed on the income tax e-filing portal. That distinction catches out a large number of first time applicants.
There is no statutory limit on the number of times Form No. 128 may be filed in a tax year. If your estimated income or transaction profile changes during the year, a further application may be made. An application may also be withdrawn at any point until it has been processed.
Which annexure you complete depends on your position, and this drives how the certificate is issued.
Annexure I. A TDS application where you know who your payers are. Their details, including TAN, go into the annexure and the certificate issues against those payers.
Annexure II. A TDS application where the number of persons responsible for deducting tax is likely to exceed one hundred and their details are not available to you when you apply. Here the Assessing Officer issues the certificate in your own name. You then generate a child certificate for each payer as their details become known, from Dashboard, then Services, then Generate and Download Child Certificate issued under Section 395(1), Form No. 128 Annexure II. Multiple child certificates may be issued, subject to the limit stated in the main certificate. The payer deducts as per the child certificate and quotes its details in the TDS statement.
Annexure III. An application for lower collection of tax at source under Section 395(3).
This is the most widely misunderstood part of the mechanism. Under Rule 213(8) the certificate is issued in the name of the person responsible for deducting or collecting the tax, under advice to the applicant. Outside the Annexure II situation, it is your payer who is named, not you.
The certificate is valid only in respect of a specified payment from the specified deductor, to the extent of the amount specified in it. Three limits therefore sit on every certificate: the payer it names, the nature of the payment it covers, and a monetary ceiling.
Under Rule 213(7) it is valid for such period of the tax year as is specified in it, unless the Assessing Officer cancels it before that period expires. It does not roll over into the next tax year, so a fresh application is required each year.
The monetary ceiling is where certificates quietly fail in practice. A certificate issued for receipts of a stated amount stops protecting payments once that amount is consumed, and payments beyond it revert to the normal rate unless a further certificate has been obtained. If your billing is running ahead of the projection you filed, apply again before the ceiling is reached rather than after.
The departmental FAQ is unambiguous: the application cannot be processed once the transaction involving TDS or TCS is completed. The certificate operates prospectively. It cannot be used to reverse a deduction that has already been made.
For recurring income such as professional fees, rent, contract receipts or interest, apply in April, at the start of the tax year, and anchor it in your compliance calendar. A certificate obtained in August protects only the payments that follow it; the deductions already taken in the first quarter stay taken and must be recovered through the return.
For a one off transaction such as a property sale, apply well before the transaction date and before any agreement obliges the buyer to deduct. Build in time for the Assessing Officer to raise queries.
One caution on the estimate itself. Understating projected income to secure a lower rate creates an advance tax shortfall, and interest follows. A realistic estimate that survives scrutiny is worth more than an aggressive one that triggers a query, delays the certificate, and costs interest at the end of the year.
For a non-resident seller of immovable property in India the certificate is not a convenience, it is close to essential. Deduction on a payment to a non-resident is computed with reference to the sum paid rather than the gain embedded in it, so tax is withheld against the sale consideration while the actual liability arises only on the capital gain. On a property bought years ago and sold at a modest gain, the difference between the two figures can be several times the tax genuinely payable.
A certificate under Section 395 brings the deduction down to the rate the computed gain supports. The buyer is then protected, because the rate comes from the department rather than from the seller assurance. The full position, including the TAN change from 1 October 2026 and the reinvestment exemptions, is set out on our lower deduction certificate for NRI page.
A separate mechanism exists on the payer side. Under Section 395(2) the person responsible for paying a non-resident may apply for determination of the appropriate proportion of the sum that is chargeable to tax. That application is made by the payer, not the payee, and is governed by Rule 214. Which of the two routes fits depends on who is driving the transaction and on the timetable, and it is worth settling that question before either party files anything.
Section 395(3) carries the lower collection certificate for TCS, which was Section 206C(9) under the old Act. The application is the same Form No. 128, completed with Annexure III, and the certificate authorises the seller, lessor or licensor to collect tax at a lower rate at the time the amount is debited to your account or received from you.
Note the asymmetry in the statute. Section 395(1) permits a certificate for lower rates or for no deduction, while Section 395(3) speaks of collection at lower rates. Rule 213(1)(b) mirrors that wording. A nil certificate is not the expected outcome on the collection side.
If you are on the paying side and a certificate is produced to you, the obligation is not discretionary. Once a certificate is issued, Section 395(1)(c) requires you to deduct at the rate it specifies for as long as it is valid. Deducting at the full statutory rate in the face of a valid certificate exposes you to a dispute with your vendor and leaves your TDS statement inconsistent with the department records.
The Finance Act, 2026 amended Section 395 to create an alternative to the Assessing Officer route. Under the amendment a payee may file the application electronically before a prescribed income tax authority, which may issue the certificate where prescribed conditions are met, or reject the application where they are not or where the application is incomplete. The stated purpose is to ease the compliance burden on small taxpayers, and the intent is that the application will be assessed against data already held by the department, including previously filed returns, the Annual Information Statement, the Taxpayer Information Summary and Form 26AS.
The position as at the date of this page is that the enabling rules have not been notified. In a written reply in the Lok Sabha on 10 August 2026, the Minister of State for Finance confirmed that the enabling rule is under preparation and will be notified in due course. Until it is, the category of taxpayers who may use the route, and the authority to whom they apply, do not exist in notified form.
Note also that the two routes are alternatives, not cumulative. The department has confirmed that an application may be filed either before the Assessing Officer or before the prescribed authority, not both. We track the notification and will move clients to the faster route as soon as it is live.
As things stand today, an application for a lower deduction certificate is made in Form No. 128 to the Assessing Officer through TRACES. Guidance telling you to apply online to a central authority is describing a rule that has not been notified.
The recurring causes, in the order we see them.
Professional fees only. There is no government fee for a Form No. 128 application.
| Engagement | Indicative professional fee |
|---|---|
| Form 128, resident individual or professional, single payer | From Rs. 7,500 |
| Form 128, business or company, multiple payers under Annexure I | From Rs. 12,500 |
| Form 128 with Annexure II, more than 100 payers, including child certificate setup | From Rs. 18,000 |
| Non-resident property sale: capital gain computation and Form 128 | From Rs. 20,000 |
| Lower collection certificate for TCS under Annexure III | From Rs. 12,500 |
| Response to Assessing Officer queries | First two rounds included |
| Fresh application on exhaustion of the certificate ceiling | From Rs. 5,000 |
Request a fixed quote for your Form 128 application. Send us the receipts you expect and who is deducting, and a CA comes back with a number and a timetable. Talk to our TDS team.
A Form 128 application is won or lost on the quality of the income estimate and on how cleanly it reconciles to what the department already knows about you. We build the estimate from your books rather than from a template, reconcile it against Form 26AS and the Annual Information Statement before filing, and clear outstanding demands or filing gaps that would otherwise sink the application.
We also handle the part most people are not expecting: tracking the monetary ceiling through the year, and filing again before it runs out rather than after your payer has already reverted to the full rate.
CorporateWalla is a brand of DSG Corporate Financial Advisors LLP, a chartered accountancy and company secretarial practice with its office at 129A Bangur Avenue, Block A, Kolkata 700055, serving clients across India.
Official sources: incometaxindia.gov.in, incometax.gov.in, and the TRACES portal at tdscpc.gov.in. Form No. 128 is filed on TRACES and nowhere else.
Form 13 has been replaced. From 1 April 2026 the application for a lower or nil deduction certificate is made in Form No. 128, prescribed under Rule 213 of the Income-tax Rules, 2026, under Section 395(1) for TDS and Section 395(3) for TCS. Certificates already issued under the old Section 197 remain valid for payments or credits on or after 1 April 2026 only where they were issued in respect of projected receivables for tax year 2026-27.
On the TRACES portal at www.tdscpc.gov.in, after logging in as a taxpayer. The navigation path is Dashboard, then e-file and view, then File Forms, then Form No. 128. It cannot be filed offline and it is not filed on the income tax e-filing portal.
No. It is optional. If you do not apply, tax is deducted at the normal rate and you claim the excess as a refund when you file your return. Form 128 only changes when you get the money, not how much tax you finally pay.
It is valid for the period of the tax year specified in the certificate itself, unless the Assessing Officer cancels it earlier. It does not extend into the next tax year, so a fresh application is needed each year. It is also capped by the amount stated in it and limited to the specified payment from the specified payer.
No. The application cannot be processed once the transaction involving TDS or TCS is complete. The certificate works prospectively. Tax already deducted has to be recovered through your return.
There is no statutory limit. A further application may be made if your estimated income or transactions change during the year, which is also the mechanism for dealing with a certificate whose monetary ceiling is close to being exhausted. An application may be withdrawn at any time before it is processed.
No. The self declaration under Section 393(6), furnished in Form No. 121 for a tax year beginning on or after 1 April 2026, is not available to companies or firms. For them the certificate route under Section 395 and Form No. 128 is the only option.
No. Form No. 128 cannot be submitted without a PAN, and a certificate under Section 395(1) will not be granted where a valid PAN has not been furnished.
Where the number of persons responsible for deducting tax is likely to exceed one hundred and you do not have their details at the time of applying, you file using Annexure II. The Assessing Officer issues the main certificate in your own name, and you then generate a child certificate for each payer from the TRACES portal as their details become available, subject to the limit stated in the main certificate.
Not yet. The Finance Act, 2026 inserted an option to apply electronically before a prescribed income tax authority, aimed at small taxpayers, but the enabling rules had not been notified as at the date of this page. The government confirmed in Parliament on 10 August 2026 that the rule is under preparation. Until it is notified, the Form 128 route to the Assessing Officer through TRACES is the operative one.
Two questions are worth settling before anything is filed: what your income for the tax year realistically comes to, and whether anything in your last four years would stop a certificate being granted. An old demand or a missing return is far cheaper to deal with before the application than after a query has landed and the quarter has moved on.
Send us your expected receipts, who is deducting, and your last four years of filings, and we will tell you what rate the numbers support before anything goes to the Assessing Officer. Call or WhatsApp +91 72783 76654, or email info@corporatewalla.com. A CA calls back within 30 minutes.
Send us your projected receipts and who is deducting, and a CA tells you what rate a Form 128 application will actually support before anything is filed. Call 72783 76654. Mon–Sat, 10:00 AM – 7:00 PM IST.
