IT Dept proposes e-processing to issue certificate for nil/lower withholding tax

The Income Tax Department has proposed to amend rules related to obtaining certificates by assessees for deduction of income tax at lower rates or no deduction.

The Department has invited comments from various stakeholders by September 4. The amended rules are likely to be notified by mid-September.

Recipients of income in India have the option of filing an application under Section 197 of the Income Tax Act with the jurisdictional assessing officer, requesting for lower or nil withholding of taxes as the case may be, based on merit.

The application needs to be filed in Form 13 along with requisite enclosures as prescribed. Traditionally, Form 13 was filed manually. However, certain jurisdictions such as Mumbai and Karnataka recently provided the option of filing the same online.

Similarly, Section 206C contains provisions enabling the assessing officer to give a certificate for collection at lower rate. The IT Department’s proposal is to make changes in both the sections and Form 13.

The first change is related to the process of issuing certificate for no deduction of tax or deduction/collection of tax at lower rate. The second proposed change is for amendment of Form 13.

Tax liability

As per the third change proposed, the existing and estimated tax liability is to be determined by the assessing officer after taking into consideration tax payable on the estimated income of the previous year relevant to the assessment year, tax payable on the assessed or returned or estimated income, as the case may be, of the last four previous years, existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957 and advance tax payment, tax deducted at source and tax collected at source for the relevant assessment year relevant to the previous year till the date of making application.

“The draft notification for proposed electronic processing of application for nil/lower withholding tax or collection of tax is a step in the right direction. It is in line with this government’s mandate of reducing interaction between the tax authorities and the tax payers,” Neeru Ahuja, Partner at Deloitte India, said.

Echoing the same sentiment, Mridhu Malhotra, Associate Director at Nangia Advisors, said draft notification proposing rationalisation of Form 13 and the relevant rules, with the aim to make the process of filing and issuing lower/ nil withholding certification u/s 197 of the Act is a welcome move.

“The same is in line with the Tax Department’s theme of digitisation of processes, to bring in efficiency, transparency and reduce redundancy. Online filing should aid in faster processing of the applications,” she said.

Ahuja said the draft notification also proposes to rationalise the details required for applying for the nil/lower withholding/collection tax certificate. Earlier, the assessed or returned income of immediately preceding previous year was required to be provided in the application. This information might not be available in the beginning of the previous year, as the return may not have always been filed prior to filing of the application. The draft notification proposes to correct this situation and allows furnishing the details of estimated tax liabilities as well.

However, now the details of income of past four years would be required.

Lowering threshold

She said the draft allows tax payers to apply for such certificate, even if it is not aware of the details of the future customers who will make the payments. However, the draft notification prescribes a threshold of 100 persons responsible for making payment.

“The government may consider lowering such threshold to accommodate small tax payers and/or start-up ventures which may not have such large customer base, but still wish to apply for lower/nil withholding,” she said.

COMMENT NOW