Obtaining a Nil / Lower Withholding Tax Certificate

Given that the new Financial Year (FY) 2024-25 is about to begin, taxpayers (recipients of income) should evaluate the requirement of obtaining nil / lower withholding tax certificate from the India tax authorities, in case they expect to receive a refund from the tax authorities for the coming FY. This could help in avoiding the taxpayer’s funds from getting blocked till the refund is received successfully from the tax authorities.

What is a Nil / Lower Withholding Tax Certificate?

The rules requiring deduction of tax at source (TDS) under the Income-tax Act, 1961, may create hardship for certain taxpayers who do not have a taxable income at all, such as the following cases:

• In case taxpayer has incurred a loss during the year, or
• Taxpayer has carried forward losses of earlier years which are available for set-off in the current year, or
• Taxpayer is eligible to claim tax-exemptions or deductions during the year, or
• In case of capital gain, the amount of gain / income might be lower than the base amount of consideration on which tax is required to be deducted at source.

In such cases, it is preferable for the taxpayer to apply for & obtain a nil / lower withholding tax certificate from the tax authorities, due to the following benefits:

• Funds of the taxpayer will not get blocked, as the payer of income would be legally bound to deduct tax at source at a nil / lower rate (than the rate prescribed under Income-tax Act),
• The taxpayer may not be required to submit its Income-tax Return (ITR) at the end of the FY, for the only purpose of claiming refund from the tax authorities

Categories of income for which Nil / Lower Withholding Tax Certificate can be obtained

Interest, Dividend, Contractual receipts, Commission, Rent, Fee for professional / technical services, Income receivable by non-residents, etc.?

Timeline for submission of application

For recurring income, it is preferrable to submit the application before the start of FY, so that maximum benefit of the nil / lower withholding tax certificate can be availed during the coming FY. In other words, for recurring income to be received during FY 2024-25, it is preferable to submit the application latest by 15 March 2024 or so, as soon as the utility to submit the application online is made available by the tax authorities. For non-recurring or one-off income, it is preferable to submit the application atleast 30 to 60 days in advance prior to receiving the income from the payer.

Procedure for submission of application

The application needs to be submitted online on the Income-tax portal of the Government of India. Form 13 needs to be prepared & submitted along with all the necessary details which enable the tax authorities to assess genuineness of the claim for nil / lower withholding tax certificate. Once the application is scrutinized by the tax authorities & subject to their satisfaction, the nil / lower withholding tax certificate will be issued by the authorities. Usually, the lead time for issue of the certificate is approx. 60 to 90 days after submission of the application. In practice, the tax authorities usually prefer to grant a lower withholding tax certificate (instead of nil) because then it is possible for the Government to atleast track the payments / transactions made within the economy.

How KrayMan can support

• Advise on feasibility of receiving nil / lower withholding tax certificate based on facts of each case
• Assistance in preparation & submission of application with the authorities
• Representing the Client before the tax authorities & answering queries
• Obtaining the nil / lower withholding tax certificate from the tax authorities

We hope you found the above useful. In case you need a quotation, please feel free to contact us at [email protected]

Regards,

Manan Agarwal

Partner - Tax & Regulatory

KrayMan Consultants LLP