Avoiding TDS by Getting Lower Tax Deduction Certificate
To curb tax evasion & establish a clear income trail, , Income Tax laws mandate the deduction of tax at Source (TDS) by the payer of income. The concept of TDS was introduced by the Government with intent to collect tax at source of income and monitor income of the beneficiaries in future. Most of the payments are now subject to TDS. There are instances wherein the TDS amount is higher than the actual tax liability of the deductee. This can pose a liquidity crunch, especially for taxpayers experiencing losses, having brought forward losses or claiming exemptions and deductions. Although the excess tax amount is refundable after the filing of income tax return (ITR), it unnecessarily ties up funds. As a result, this concept of TDS itself is creating blockages for those taxpayers whose actual income tax liability is less than the TDS. To address these challenges, the Income Tax Law provides for the concept of a Lower Deduction Certificate (LDC), offering relief to eligible taxpayers. Let us know more about it:
1.Eligibility for LDC Application:
Any taxpayer whose tax liability is less than the amount of TDS can file an online application for LDC i.e. Lower Deduction Certificate with the Income Tax Authorities under Rule 28 of the Income Tax Rules-1962.
2.Application Process:
Taxpayers shall be required to make an application in Form No. 13 electronically, through digital signature or electronic verification code at the TDS traces site at https://contents.tdscpc.gov.in/. It’s crucial to provide accurate details in Form No. 13, including information about the payers of income from whom the taxpayer expects to receive income or payments.
3.Verification by Income Tax Officer before issuing LDC:
While considering the eligibility of the person for LDC, the Income Tax Officer shall take into consideration the existing and estimated tax liability. Income Tax officer shall verify the following:
1.Tax payable on estimated income for the relevant financial year;
2.Tax payable on the assessed or returned (or estimated income of last 4) of the financial yea
3.Existing liability as per the Income-tax Act, 1961;
4. Advance tax payment (tax deducted at source and tax collected at source for the relevant financial year till the date of making application under rule 28).
4.Issuance of LDC:
When the Assessing Officer is satisfied that the existing and estimated tax liability of a person making an application under rule 28 justifies the deduction of tax at lower rate or no deduction of tax, then the Assessing Officer shall issue a certificate for deduction of tax at such lower rate or no deduction of tax accordingly. When such a certificate is given to the payer/deductor, the person shall deduct income-tax at the rates specified in such certificate or deduct no tax, until such certificate is being cancelled/ revoked by the Assessing Officer.
5.LDC in whose Name?
LDC shall be issued directly in the name of the payer/deductor who is responsible for deducting the tax and whose name has been mentioned by the person while making an application in Form No. 13. There may be cases wherein the applicant may not be having the name of the persons who will be making the payment to such person. In such a case, LDC may be issued directly in the name of the applicant itself who has made an application for issue of such certificate, authorizing him to receive such an amount of income or sum after deduction of tax at a lower rate.
6.Validity period of LDC:
LDC shall remain valid for such period as specified therein unless it is cancelled/ revoked by the Assessing Officer before the expiry of the prescribed period. Also, it shall be valid only with respect to the person responsible for deducting the tax and named therein and to the applicant who made an application for issue of such certificate.
7.When should an application be filed?:
Normally, it takes a period of one month to get the LDC from the income tax department. It is advisable to file the application at the beginning of the financial year. The issuance of a lower deduction certificate at the beginning of the year would result in non deduction or lower deduction for the entire year.
Conclusion:
The recent expansion of TDS to include purchase and sales transactions, Cash withdrawals transactions, etc has significantly increased the scope of TDS. This expansion has led to the blocking of taxpayers’ funds. Opting for an LDC can provide relief to taxpayers facing liquidity issues due to excessive deduction of tax at source. Moreover, the online process for obtaining an LDC has been simplified, making it easier for the taxpayers to apply and get the benefit..
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
