Section 197

Section 197 of Income Tax Act grants taxpayers option of either zero-rate or reduced tax rate for TDS deduction or exemption.

What Is Section 197?

Assessees whose income would be subject to tax deduction at source (TDS) must submit application to assessing officer with jurisdiction over them in order to be eligible for this benefit. assessee in question may request certificate from jurisdictional assessing officer for zero or reduced TDS deduction on receipts using required Form No 13.

Applicant would receive certificate for TDS at rate of Nil or lower from AO after taking into account assessee's total income & estimated tax burden.
 

What Does Section 197 Cover?

sources of income that Income Tax Act's 197 of income tax act covers
Following list of sources of income is covered by Income Tax Act Section 197:

• Salary: Any TDS that is deducted in relation to salary may be exempt or subject to deduction under applicable Section.
• Interest on securities: lower or zero TDS may apply to interest on securities. 
• Dividend: In accordance with Section 197, any tax withheld for dividend payments to beneficiaries may also be claimed as zero or low TDS deduction.
• Payment to contractors: When taxes are withheld in order to pay contractors, assesses may be eligible for TDS relief. In this context, "contractor" refers to someone who performs work as per contract. 
• Commission on insurance: Any tax deducted on commission associated with insurance may also be eligible for zero percent or reduced TDS rate. 
• Lottery income: This Section applies to any tax withheld on lottery winnings that take form of prizes. Moreover, commissions for TDS relief are also included.
• Commission & brokerage: Section 197 provides relaxation benefits for tax deducted upon payment of commission & brokerage to any resident of India.
• Rent income: Rent income may be fully exempt from TDS or subject to minimal rate of deduction. 
• Professional income: Individuals may be liable to reduced TDS deduction rates for their professional income. 
• Dividends from mutual funds: You can also claim lower rates or nil TDS for 194K or tax deducted on dividends received from mutual fund units. 
   

Key Provisions Of Section 197

Section 197's goal is to mitigate possible financial burden that regular TDS rates might impose because they might not accurately reflect recipient's true tax obligation.

Principal Elements of Section 197:

• Reduced or Nil TDS: If certain requirements are completed, taxpayers may apply under Section 197 for certificate allowing payer to deduct tax at reduced rate or even not at all (nil rate).
• Applicability: It covers range of revenue sources that are liable to TDS, including commission, rent, interest, dividends, professional fees, & others.
• Preventive Measures Against Excess Deduction: provision aims to avoid circumstances in which total amount withheld at source (TDS) exceeds taxpayer's real tax burden. This could result in needless fund blockages & subsequent refund procedures.
• Favorable for Specific Taxpayers: Especially favorable for individuals whose total income is below taxable limit or who qualify for reduced tax rates because of lower income slabs, deductions, or exemptions.
   

Procedure For Applying For Lower Deduction Or No Deduction Under Section 197

To ensure compliance & properly get advantages, it is essential to effectively navigate procedural requirements of applying for lower Tax Deduction at Source (TDS) rates under Section 197 of Income Tax Act, 1961. There are particular procedures, paperwork, & tax law compliance required for this process.

1. Lower TDS Application Process:

• Form Submission: Taxpayers are required to submit required form to Assessing Officer (AO) in their jurisdiction, which is Form 13 or its equivalent. To request certificate for lower or zero TDS, complete this form.
• Required Information: thorough explanation of taxpayer's income, tax liability, & rationale for lower TDS rate must be included in application.
• Supporting Documentation: Taxpayers must enclose supporting documentation with their application, such as income statements, evidence of investments, tax returns from prior years, & any other pertinent financial records.

2. Adherence to Tax Laws:

• Adherence to Guidelines: When submitting application for reduced TDS rate, it is essential to follow rules & regulations specified in Income Tax Act.
• Accuracy of Information: data entered into application needs to be genuine & accurate. Legal repercussions may follow any deception.
• Timely Submission: If possible, applications should be sent in as soon as it becomes clear that TDS would exceed actual tax liability, which is ideally before start of fiscal year.
   

Threshold Limits for TDS Deduction

A taxpayer may apply under Section 197 for reduced TDS rate or nil deduction if their estimated total income is less than taxable limit or if applicable tax rate is lower. Section 197 relieves taxpayers who might otherwise be subject to needless TDS by allowing assessment of real tax liability against normal threshold limits.

Exceptions Or Exemptions To Section 197

It is imperative for taxpayers to comprehend exclusions & requirements for reduced or zero Tax Deduction at Source (TDS) in relation to Section 197 of Income Tax Act, 1961. This information guarantees that tax regulations are followed & aids in efficient tax planning.

• Exemptions Regarding Section 197:

Requirements for exemption: Section 197 exemptions are given according to expected total income of taxpayer for fiscal year. taxpayer might not be subject to usual TDS rates if this estimated income is less than taxable limit or qualifies for lower tax rate.
Particular Income Categories: exemptions include wide range of income sources where TDS is due, including interest, dividends, rent, professional fees, & so on.

• Requirements for Lower or No TDS:

Income estimation: All sources of income for year must be estimated by taxpayer.
Tax Calculations: All deductions & exemptions under Income Tax Act must be taken into account when calculating projected income tax.

Taxpayer must submit stipulated application to Assessing Officer together with necessary supporting evidence in order to claim lower or no TDS.
 

Consequences Of Non-Compliance Under Section 197

Section 197 of Companies Act, 2013 outlines provisions related to managerial remuneration for directors & key managerial personnel in Indian companies1. Let’s delve into key points:

Penalties for Non-Compliance:

If any directors or key managerial personnel fail to comply with Section 197, they may face penalty of ₹1 lakh.
If company itself is non-compliant, penalty increases to ₹5 lakh.

Maximum Remuneration Limit:

Section 197 sets limit on maximum remuneration that can be paid to directors & key managerial personnel.
Remuneration should be reasonable & proportionate to company’s performance.

Conclusion

Section 197 of Indian Income Tax Act provides taxpayers with ability to apply for certificate of lower deduction or non-deduction of tax to reduce their tax liability. This certificate is issued by authorized officer if taxpayer's income is below specified threshold limit. certificate is valid for assessment year it is issued & helps in compliance with income tax regulations by ensuring that tax is deducted at lower rate or not at all, as per eligibility criteria defined in act.