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Lower Deduction Certificates
Reduce Your Tax Burden
Tax Deducted at Source (TDS) is a mechanism where a specified percentage of tax is deducted on certain types of income at the time of payment. However, there are instances where the standard TDS rate may be higher than the actual tax liability of the recipient. In such cases, taxpayers can apply for a Lower Deduction Certificate (LDC) under Section 197 of the Income Tax Act, 1961, to request deduction at a reduced rate or no deduction at all.
At Alpviram Legal, we specialize in assisting businesses, professionals, and NRIs in obtaining Lower/Nil Deduction Certificates efficiently and in full compliance with Income Tax Department regulations.
What is a Lower Deduction Certificate?
Any taxpayer who expects their total income to justify a lower TDS rate than the standard can apply, including:
Freelancers and consultants
Companies and LLPs
Charitable institutions
Non-Residents (including NRIs, foreign companies)
Partnership Firms
Trusts and Societies
Beneficial Scenarios for LDC Application
Loss-making businesses
Assessee having carried forward losses to set off with future year’s income
Assessee having net total income below the applicable basic exemption limit
Receipt of the payment for the sale of property in India by a non-resident seller from an Indian buyer
Receipt of the payment by a company that does not have Permanent Establishment in India from the customer who is liable to deduct tax at source under section 195
This list, as mentioned above, is not exhaustive and there might be other cases also where LDC issuance would be beneficia
Eligibility for Making an Application for the LDC
The application can be made where the particular income of any person attracts TDS as per the relevant sections concerned with tax deduction at source and estimated total income of the recipient justifies no deduction or lower deduction of Income Tax for the relevant financial year.
Time Limit for Making LDC Application
The Income Tax Act specifies no time limit for applying for the lower deduction certificate. However, as TDS applies to income of the ongoing financial year, it is recommended to make the application at the beginning of the financial year in case of regular income throughout the year and as and when it is required in case of one-off incomes.
Validity of the Certificate
The certificate is typically valid for the financial year for which it is issued.
If income structure or business circumstances change, a fresh application may be needed.
Benefits of Obtaining an LDC
- Avoids excessive tax deduction
- Improves cash flow and working capital
- Minimizes refund processing delays
- Ensures tax compliance and transparency
- Helpful for non-residents and exporters receiving inward remittances
Frequently Asked Questions
It is the comprehensive statute that governs the levy, administration, collection, and recovery of income tax in India.
Individuals, Hindu Undivided Families (HUFs), companies, firms, LLPs, associations of persons, bodies of individuals, local authorities, and any other artificial juridical persons are liable to pay tax if they have taxable income.
The assessment year is the year following the financial year in which income is assessed to tax. The previous year is the financial year in which income is earned.
Residential status is determined based on the individual’s physical presence in India during the financial year and the preceding years, as specified in the Act.
Income is categorized into:
- Salaries
- Income from House Property
- Profits and Gains of Business or Profession
- Capital Gains
- Income from Other Sources
Agricultural income is exempt from tax, but it is considered for rate purposes when computing tax on non-agricultural income.
It provides a rebate on tax payable for individuals with income below a certain threshold, effectively reducing their tax liability.
It is a certificate issued by employers detailing the salary paid and tax deducted at source (TDS) on it.
It is the income tax payable if your tax liability exceeds a certain amount, to be paid in installments during the financial year.
It is a means of collecting tax at the source from where an individual’s income is generated.
Returns can be verified electronically using Aadhaar OTP, net banking, or by sending a signed physical copy to CPC Bangalore.
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