Section 395 — Certificates | ITA 2025

Section 395 — - CERTIFICATES FOR DEDUCTION/COLLECTION AT LOWER OR NIL RATE

Section 395 of the Income-tax Act, 2025 corresponds substantively to sections 197 (lower deduction certificate), 197A (declaration in Forms 15G/15H/15CA-CB) and the related certificate-issuance framework of the 1961 Act. It permits a payee/recipient to apply for a certificate authorising the deductor/collector to deduct tax at a lower rate or no tax.

Statutory text — Income-tax Act, 2025

(1) Where tax is required to be deducted on any income or sum under this Chapter, then subject to the rules made under this Act,—

(a) the payee may make an application before the Assessing Officer for deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be; and

(b) the Assessing Officer on being satisfied that the total income of the payee justifies deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be, shall issue to him a certificate as appropriate; and 90 [(c) when a certificate is issued under clause (b) or sub-section (6), as the case may be, the person responsible for paying the income or sum shall deduct the tax at the rate specified in such certificate, or deduct no income-tax, as the case may be, till its validity.] (2)(a) The person responsible for paying to a non-resident any sum as mentioned in section 393(2) (Table: Sl. No. 17), may make an application to the Assessing Officer in such form and manner as may be prescribed, where he considers that the whole of such sum would not be chargeable in the case of the recipient;

(b) the application under clause (a) shall be for determination of the appropriate proportion of the sum chargeable to tax, by the Assessing Officer in the manner as may be prescribed; and

90. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (c) read as under : “(c) when a certificate is issued under clause (b), the person responsible for paying the income or sum shall deduct the tax at the rate specified in such certificate, or deduct no income-tax, as the case may be, till its validity.”

(c) when the determination is made by the Assessing Officer as per clause (b), the tax shall be deducted under section 393(2) (Table: Sl. No. 17) only on that proportion of sum which is chargeable to tax under the Act.

(3) Where tax is required to be collected on any amount under this Chapter, then subject to the rules made under this Act,—

(a) the buyer or licensee or lessee may make an application before the Assessing Officer for collection of tax at a lower rate;

(b) the Assessing Officer on being satisfied that the total income of the buyer or licensee or lessee justifies collection of tax at a lower rate, shall issue to him a certificate as may be appropriate; and

(c) when a certificate is issued under clause (b), the person responsible for collecting tax shall collect it at the rates specified in such certificate till its validity. (4)(a) Every person deducting or collecting tax shall issue a certificate to the deductee or collectee, as the case may be, specifying—

(i) the amount of tax that has been deducted or collected;

(ii) the rate at which tax has been deducted or collected; and

(iii) any other particulars, as may be prescribed, within such period as may be prescribed;

(b) an employer referred to in section 392(2)(a) shall issue a certificate to the employee, in respect of whose income payment of tax has been made by the employer, that the tax has been paid to the Central Government, and specify—

(i) the amount of tax so paid;

(ii) the rate at which tax has been paid; and

(iii) any other particulars, as may be prescribed, within such period, as may be prescribed.

(5) The Assessing Officer may cancel the certificate granted under sub-section (1) or (3) after giving reasonable opportunity to the applicant. [(6) The application referred to in sub-section (1)(a) may also be filed before the 91 prescribed income-tax authority, subject to such conditions as may be prescribed, and such authority on electronic verification of the contents of the application, may—

(a) either issue a certificate for deduction of income-tax at lower rate or no deduction of income-tax; or

(b) reject such application on account of non-fulfilment of the prescribed conditions or on account of the application being incomplete.] Tax deducted is income received.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
2025 provision	1961 counterpart
s. 395 -- Lower / nil deduction certificate	s. 197 (FA 1987 onwards)
s. 395 -- Self-declaration (15G/15H equivalents)	s. 197A
s. 395 -- Foreign remittance certificate	Form 15CA / 15CB framework r/w s. 195(6) and Rule 37BB

STATUTORY ARCHITECTURE

Section 395 is the statutory engine for adjusting TDS to the actual tax liability of the recipient. It prevents the working-capital lock-in inherent in TDS regimes -- where a recipient's actual tax liability is lower than the TDS rate, the recipient can obtain a certificate authorising the deductor to deduct at the lower rate. The Assessing Officer is empowered to issue (a) a NIL deduction certificate (where total income is below taxable threshold), or (b) a lower-rate certificate (where actual rate is lower than statutory rate).

APPLICATION PROCESS

Application is made in Form 13 (TRACES portal) by the recipient. The AO examines: (a) past tax compliance history, (b) projected income for the year, (c) tax already paid (advance tax/TDS earlier), (d) refund position. Decision must be made within 30 days (CBDT Circular No. 11/2017). A certificate is issued (usually digitally signed) bearing a unique number; the deductor must record this number on the deduction memo.

SELF-DECLARATIONS (Forms 15G / 15H)

Where the recipient is a resident individual / HUF (s. 197A of 1961) and total income (including the receipt) is below taxable threshold, a self-declaration in Form 15G (general) or 15H (senior citizens 60+) suffices. The deductor must accept the form and forward to AO. Form 15G/15H is invalid if estimated total income exceeds basic exemption limit.

FOREIGN REMITTANCE CERTIFICATES (Forms 15CA/15CB)

For payments to non-residents (s. 195 of 1961 / s. 393 of 2025 r/w s. 395), Rule 37BB requires Form 15CA (declaration by remitter) and where applicable Form 15CB (CA certificate). Six categories of payments are specified -- Part A for small remittances < INR 5 lakhs / Part B for non-taxable remittances under certificate from AO / Part C for taxable remittances supported by Form 15CB / Part D for remittances not requiring TDS.

PRACTITIONER PLANNING NOTES

Apply via TRACES portal (Form 13) at the start of the FY for entities that historically have refund positions; certificates are usually FY-specific.
For start-ups in initial years (loss / minimum alternate situations), nil-deduction certificate prevents working capital crunch.
Form 15CB issuance: CA must verify chargeability under DTAA + s. 9 / s. 5 of 1961 (s. 7 / s. 5 of 2025); document Beneficial Owner status, PAN, TRC, Form 10F.
Form 15G/15H limit: cumulative interest from one bank > INR 40,000 (50,000 for senior citizens) requires actual TDS even if Form filed -- the Form merely confirms eligibility, not absolute exemption.
Certificate number on TDS challan: ensure deductor has captured Form 13 reference; mismatch causes return processing rejection.
Applicability across multiple deductors: a single Form 13 certificate applies to the listed deductor only; separate applications for each.

CASE-LAW DIGEST

Tata Tea Co. Ltd. v. ACIT (1988) 173 ITR 18 (SC) -- AO's discretion in granting lower-rate certificate is administrative; bound by s. 197 framework.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) -- TDS only on chargeable amount; remitter can self-determine but assumes risk.
Steel Authority of India Ltd. v. ACIT (2014) 224 Taxman 191 (Del) -- AO must give reasons for rejecting Form 13.

CROSS-REFERENCES

s. 393 -- TDS framework.
s. 394 -- TCS framework (similar lower-rate certificate).
s. 396 -- TDS deemed income.
Rule 28AA, 28AB, 37BB (Income-tax Rules, 1962).

← All sections (537)Act 2025 hub