The Central Board of Direct Taxes (CBDT) has issued an important clarification in July 2026 regarding the continuity of nil and lower Tax Deducted at Source (TDS) certificates under the new Income Tax Act 2025. This clarification brings relief to millions of taxpayers who were concerned about the transition to the new tax framework.
Understanding the CBDT Clarification of July 2026
With the implementation of the new Income Tax Act 2025, which came into effect from April 1, 2026 (Financial Year 2026-27), there were apprehensions among taxpayers about whether existing tax benefits and provisions would continue. The CBDT has now officially confirmed that the facility to obtain nil or lower TDS certificates under Section 197 remains intact and will function seamlessly under the new Act.
This clarification is particularly significant as it ensures business continuity for taxpayers who rely on lower TDS certificates to optimize their cash flows throughout the financial year, rather than waiting for refunds after filing income tax returns.
What is a Nil or Lower TDS Certificate?
A nil or lower TDS certificate is an official document issued by the Income Tax Department that allows taxpayers to receive certain incomes with no tax deduction or tax deduction at a rate lower than the prescribed rate. This certificate is issued under Section 197 of the Income Tax Act (now continued under the new Act 2025).
The certificate is issued when the Assessing Officer is satisfied that the total income of the recipient justifies the nil or lower deduction of tax at source. This mechanism prevents unnecessary tax deductions and subsequent refund claims, improving liquidity for taxpayers.
Who Can Apply for Lower TDS Certificates?
Under the provisions that continue in the new Income Tax Act 2025, the following categories of taxpayers are typically eligible to apply for nil or lower TDS certificates:
- Individuals with income below taxable limit: Persons whose total income for the financial year is expected to be below the basic exemption limit can apply for nil TDS certificates.
- Senior citizens: Senior citizens whose primary income is from interest and whose total income is below the taxable threshold are prime candidates for nil TDS certificates.
- Non-Resident Indians (NRIs): NRIs whose Indian income is below the taxable limit or who have losses from previous years can apply.
- Taxpayers with significant deductions: Individuals who make substantial investments under Chapter VI-A deductions (such as Section 80C, 80D, etc.) and whose tax liability is nil or minimal.
- Businesses with losses: Companies or businesses that have carried forward losses and whose current year income may not result in tax liability.
Key Features of the CBDT Clarification
The July 2026 CBDT clarification provides several important assurances:
1. Seamless Transition
The transition from the old Income Tax Act 1961 to the new Income Tax Act 2025 will not disrupt the issuance or validity of TDS certificates. Certificates issued under the old Act remain valid until their expiry date, and new applications under the new Act follow the same procedure.
2. Form 13 Continues
The application for nil or lower TDS certificates continues to be made through Form 13. The format and fields have been updated to align with the new Act's provisions, but the fundamental process remains unchanged, making it easier for taxpayers to adapt.
3. Digital Processing
The CBDT has emphasized that the entire process remains fully digital. Applications can be submitted online through the Income Tax e-filing portal, and certificates are issued electronically, which can be downloaded and shared with deductors.
4. Validity Period Unchanged
Lower TDS certificates issued under the new Act will have the same validity period as before – typically one financial year. Taxpayers need to renew their certificates annually by filing fresh applications.
How to Apply for Form 13 in FY 2026-27
The process to apply for a nil or lower TDS certificate under the new Income Tax Act 2025 is straightforward:
Step 1: Access the E-Filing Portal
Visit the official Income Tax e-filing portal at www.incometax.gov.in and log in using your PAN as the user ID and your password.
Step 2: Navigate to Form 13
Go to the 'e-File' menu, select 'Income Tax Forms', and then choose 'File Income Tax Forms'. From the list of available forms, select Form 13.
Step 3: Fill in the Required Details
Provide accurate information including:
- Personal details (name, PAN, address, contact information)
- Assessment year for which the certificate is required
- Details of income expected during the financial year
- Estimated tax liability after considering all deductions
- Details of deductors (if known)
- Reasons for requesting lower or nil TDS
Step 4: Upload Supporting Documents
Attach relevant documents such as:
- Previous year's Income Tax Return
- Form 26AS or Annual Information Statement
- Computation of estimated income and tax liability
- Proof of investments under Section 80C and other deductions
- Bank statements showing interest income
Step 5: Submit and Track
After verifying all details, submit the form electronically. You can track the status of your application through the e-filing portal. The Assessing Officer will review your application and may seek additional information if required.
Step 6: Download the Certificate
Once approved, the certificate will be available for download on the e-filing portal. Download the certificate and provide copies to all relevant deductors (employers, banks, etc.).
Benefits of Lower TDS Certificates
The continuation of nil and lower TDS certificates under the new Act provides several advantages:
Improved Cash Flow
By preventing excess tax deduction at source, taxpayers can maintain better cash flows throughout the year, avoiding the lock-in of funds that would otherwise be refunded only after filing returns.
Reduced Compliance Burden
Lower TDS means less reconciliation work and reduced need to file refund claims, simplifying year-end tax compliance.
Optimized Tax Planning
Taxpayers can better plan their investments and expenditures when they have access to their full income rather than waiting for refunds.
Interest Savings
For businesses and individuals who might otherwise borrow working capital, lower TDS certificates can reduce the need for short-term borrowing, saving interest costs.
Important Points to Remember
While applying for nil or lower TDS certificates under the new Income Tax Act 2025, keep these points in mind:
- Accuracy is crucial: Ensure that your income estimates are realistic. Underestimating income may lead to tax liability and interest under Section 234B and 234C.
- Timely application: Apply for the certificate well before the start of the financial year to ensure approval before any income is received.
- Annual renewal: Remember that certificates are valid only for one financial year and must be renewed annually.
- Inform all deductors: Provide copies of the certificate to all persons responsible for deducting TDS from your income.
- Maintain documentation: Keep proper records of all income received and TDS deducted to reconcile at year-end.
- Monitor changes: If your income situation changes significantly during the year, inform the Assessing Officer and update your certificate if necessary.
Impact on Different Taxpayer Categories
Salaried Individuals
Salaried employees who have significant tax-saving investments or other sources of losses can benefit from lower TDS on salary, reducing monthly tax deductions.
Senior Citizens
Senior citizens with interest income below the enhanced basic exemption limit of ₹3 lakh (as per current provisions) can obtain nil TDS certificates for bank interest, avoiding quarterly TDS deductions.
Professionals and Consultants
Freelancers and consultants whose actual tax liability is lower than the prescribed TDS rates can apply for lower deduction certificates, improving their working capital.
Non-Resident Indians
NRIs with limited Indian income can avoid high TDS rates on property sales or rental income by obtaining appropriate certificates based on their actual tax liability.
Common Reasons for Rejection and How to Avoid Them
Applications for lower TDS certificates may be rejected for several reasons:
- Incomplete documentation: Ensure all required documents are attached and clearly legible.
- Unrealistic income projections: Base your estimates on concrete evidence and past trends.
- Pending tax demands: Clear any outstanding tax demands before applying.
- Non-filing of previous returns: Ensure you're compliant with past ITR filing obligations.
- Inconsistent information: Cross-verify all data to ensure consistency across forms and documents.
Conclusion
The CBDT's July 2026 clarification regarding the continuation of nil and lower TDS certificates under the new Income Tax Act 2025 is a welcome move that ensures stability during the transition period. Taxpayers can continue to benefit from this important facility to optimize their tax cash flows and reduce unnecessary compliance burden.
As we move forward in the Financial Year 2026-27, taxpayers eligible for nil or lower TDS certificates should proactively apply through Form 13 on the Income Tax e-filing portal. The digital process, combined with the reassurance of policy continuity, makes this an opportune time to leverage this beneficial provision.
Remember to consult with a tax professional if you have complex income situations or are unsure about your eligibility. Proper planning and timely application can significantly enhance your financial management throughout the year while remaining fully compliant with the new Income Tax Act 2025.