Section 395 Income Tax Act 2025: How to Obtain Lower or Nil TDS Certificates?
Section 395 deals with certificates for lower or nil tax deduction at source, lower tax collection at source, determination of taxable portions of certain non-resident payments, and certificates evidencing tax deducted or collected. The Finance Act, 2026 also introduced an electronic route for eligible lower or nil TDS applications.
Applicable law: Income-tax Act, 2025, as amended by the Finance Act, 2026.
Amendment: Section 395(1)(c) was substituted and Section 395(6) inserted with effect from 1 April 2026.
What is the purpose of Section 395?
Tax deducted or collected at source can exceed the tax ultimately payable by the recipient. Section 395 provides routes for obtaining specified lower or nil TDS certificates and lower TCS certificates, subject to prescribed conditions. It also obliges deductors and collectors to provide tax certificates recording the deduction or collection.
Important distinction: A certificate under Section 395(1) or (3) changes the applicable withholding or collection rate during its validity. A certificate under Section 395(4) records tax already deducted, collected or paid. These serve different purposes.
Section 395 explained subsection by subsection
Section 395(1): Lower or nil TDS certificate for the payee
The payee may apply to the Assessing Officer for deduction at a lower rate or without deduction. If satisfied that the payee's total income justifies the request, the Assessing Officer issues an appropriate certificate. The person responsible for payment must then apply the rate specified in the certificate, or make no deduction, for as long as the certificate is valid. Following the 2026 amendment, clause (c) also recognises certificates issued under subsection (6).
Section 395(2): Determining the taxable portion of certain payments to non-residents
Where a payer considers that the entire amount payable to a non-resident under Section 393(2), Table Sl. No. 17 is not chargeable, the payer may apply to the Assessing Officer in the prescribed form and manner. The Assessing Officer determines the appropriate chargeable proportion. Tax is then deducted on that chargeable proportion, rather than automatically on the entire remittance. This is a determination route, not an automatic exemption.
Section 395(3): Lower TCS certificate
A buyer, licensee or lessee may apply to the Assessing Officer for collection at a lower rate. If satisfied that the applicant's total income justifies the reduction, the Assessing Officer issues a certificate. The collector applies the certified lower rate while it remains valid. This subsection expressly provides for lower TCS, rather than a general nil-TCS certificate.
Section 395(4): Certificates issued by deductors, collectors and employers
A person deducting or collecting tax must issue a certificate to the deductee or collectee showing the amount, rate and other prescribed particulars within the prescribed period. An employer paying tax on non-monetary perquisites under Section 392(2)(a) must likewise issue a certificate showing tax paid on the employee's behalf.
Under the Income-tax Rules, 2026, the applicable TDS/TCS certificate forms include Form Nos. 130, 131, 132 and 133, depending on the nature of the payment or collection. Consult the applicable rule and form instructions before issuing a certificate.
Section 395(5): Cancellation after hearing
The Assessing Officer may cancel a certificate issued under subsection (1) or (3), but must first give the applicant a reasonable opportunity of being heard. Payers and collectors should verify whether a certificate remains operative before relying on it.
Section 395(6): Electronic application route introduced in 2026
Subject to prescribed conditions, an application of the kind referred to in Section 395(1)(a) may also be made to a prescribed income-tax authority. Following electronic verification, that authority may issue a lower or nil deduction certificate or reject the application because prescribed conditions are not met or the application is incomplete. Eligibility and procedure depend on the applicable rules; this is not an unrestricted automatic entitlement.
Quick reference: Certificates under Section 395
| Provision | Who applies or acts? | Purpose |
|---|---|---|
| 395(1) | Payee applies | Lower or nil TDS |
| 395(2) | Payer to non-resident applies | Determine chargeable proportion of specified payment |
| 395(3) | Buyer, licensee or lessee applies | Lower TCS |
| 395(4) | Deductor, collector or specified employer issues | Evidence of tax deducted, collected or paid |
| 395(5) | Assessing Officer | Cancellation after opportunity of hearing |
| 395(6) | Eligible payee applies to prescribed authority | Electronic verification and issue or rejection of lower/nil TDS certificate |
How to apply for a lower or nil TDS certificate
- Identify the applicable TDS provision and whether the application is made by the payee or, in a specified non-resident payment, by the payer.
- Assess the expected taxable income and supporting evidence for the relevant tax year.
- Submit the prescribed application to the Assessing Officer, or use the prescribed electronic authority route if eligible under Section 395(6).
- Provide supporting particulars and respond to any verification requirements.
- On issue, give the valid certificate details to the payer and confirm that deductions follow its terms and validity period.
Filing an application alone does not authorise the payer to stop deducting tax. The applicable certificate or determination must first be obtained.
Relevant statutory terms
- Payee
- Person entitled to receive income or a sum from which tax may be deductible.
- Deductor
- Person responsible for deducting tax at source from a specified payment.
- Collectee
- Person from whom tax is collected at source on a specified transaction.
- Assessing Officer
- Income-tax authority exercising the functions assigned to an Assessing Officer under the Act.
- Lower or nil deduction certificate
- Certificate authorising a payer to deduct at a reduced rate or not to deduct, subject to its terms and validity.
- Chargeable proportion
- Part of a specified payment to a non-resident determined to be taxable under the Act for the purpose of Section 395(2).
These explanations are descriptive; the Act and applicable rules govern the legal meaning and scope.
Practical illustrations
Example 1: Lower TDS
A contractor expects limited taxable profits despite substantial gross receipts. If a certificate is issued under Section 395(1), the payer follows the certified rate during its validity instead of the ordinary rate.
Example 2: Non-resident remittance
A business remits a composite payment to a non-resident, only part of which it considers chargeable in India. The payer may seek determination under Section 395(2); it should not unilaterally treat the entire payment as exempt.
Example 3: Lower TCS
A qualifying buyer obtains a lower collection certificate under Section 395(3). The seller collects tax at the certified rate until the certificate expires or is cancelled.
Frequently asked questions
Can a payee request nil or lower TDS?
Yes. Under Section 395(1), the payee may apply for a certificate and the Assessing Officer may issue it if the payee's total income justifies nil or lower deduction.
Can the payer apply regarding a non-resident remittance?
Yes, for sums covered by Section 393(2), Table Sl. No. 17, the payer may seek determination of the portion chargeable to tax under Section 395(2).
Can a buyer obtain lower TCS?
Yes. Section 395(3) allows a buyer, licensee or lessee to apply for a lower collection certificate, subject to the prescribed rules.
Can a lower TDS certificate be issued electronically?
Yes. Section 395(6), inserted by the Finance Act, 2026, permits an application to a prescribed income-tax authority, subject to prescribed conditions and electronic verification.
Can the Assessing Officer cancel a certificate?
Yes, after giving the applicant a reasonable opportunity of being heard under Section 395(5).
Note: This article provides a general explanation of Section 395. Verify current rules, prescribed forms, certificate validity and administrative instructions for the transaction concerned.