Lower tax deduction certificate - Certain interim measures
APRIL 24, 2020
By Sunil Kukreja, Manager and Srinath Kumar, Deputy Manager, Deloitte Haskins & Sells LLP
IT is said that "One in hand is better than two in the bush". Having a lower withholding/Nil withholding certificate (popularly known as '197 certificate') is always preferred to getting income tax refund along with interest.
The 197 certificate for lower rate / Nil rate of deduction has become a major savior for various assessees having brought forward losses, claimed tax holidays, incurred huge capital expenditure, anticipated losses in current year etc., considering the immediate availability of cash flows on account of lower / Nil tax deduction.
The application for 197 certificate for FY 2020-21 has been open for submission on the Traces portal from 28 February 2020. Post submission, initial level discussion with the AO/TDS officers have also been initiated in various cases. However, due the outbreak of Covid-19 and the nationwide lockdown till 03 May 2020, the processing of the 197 applications could not be completed in time in a majority of the cases.
Relief in relation to 197 certificate due to Covid-19 situation
In order to address concerns of the industry which is already trying to address other economic impacts arising from Covid-19, the CBDT issued an order dated 31 March 2020 and a press release dated 04 April 2020 in relation to 197 certificate to provide relief, as under:
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Sr.No.
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Assessees covered
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Relief
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1
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Applied for 197 certificate for FY 2020-21 (having 197 certificate for FY 2019-20)
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The certificates issued in FY 2019-20 (typically expiring on 31 March 2020) would be applicable till 30 June 2020 of FY 2020-21 or disposal of application by TDS officers, whichever is earlier
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2
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Applied for 197 certificate for FY 2020-21 (not having 197 certificate for FY 2019-20)
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The certificates issued in FY 2019-20 (typically expiring on 31 March 2020) would be applicable till 30 June 2020 of FY 2020-21
Such assessees are required to apply for 197 certificate as soon as normalcy is restored or by 30 June 2020, whichever is earlier in the modified format
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3
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Not applied for 197 certificate for FY 2020-21 (not having 197 certificate for FY 2019-20)
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A modified procedure of application through email and consequent handling by the TDS has been prescribed
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4
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On payments to non-resident having permanent establishment in India and not covered in (1) and (2) above
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Withholding tax will be 10% including surcharge and cess on such payments till 30 June 2020 or disposal of application, whichever is earlier
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While the above CBDT order provided much needed relief in relation to 197 certificate, it also left certain open issues unaddressed. The CBDT addressed such issues within a span of few days, vide clarifications discussed below.
Clarification on 197 certificate issued on 9 April 2020
Considering representations of industry and to provide answers to open issues on interpretation of the CBDT order dated 31 March 2020, the CBDT issued clarifications on 09 April 2020. The key clarifications are as under:
1. Validity period
If a certificate was issued for a period from 01 October 2019 to 15 December 2019 the same shall be valid for FY 2019-20 for the same period and for FY 2020-21, it shall be valid from 01 April 2020 to 30 June 2020, subject to conditions.
2. Threshold/transaction limit
The threshold/transaction limit mentioned in 197 certificate issued for FY 2019-20 will be taken afresh for period from 01 April 2020 to 30 June 2020 for FY 2020-21 and the amount of threshold limit will be the same as was assigned for these certificates for FY 2019-20, subject to other conditions mentioned in the order dated 31 March 2020 1.
3. Relief not extended for new TAN or for reduced rate
- In case 197 certificate is obtained for FY 2019-20 and an application has been made for FY 2020-21 for a new / different TAN mentioned in the application, then the relaxation as provided in order dated 31 March 2020 (i.e. extension of the 197 certificate till 30 June 2020) shall not apply to such cases and they have to apply afresh as per the modified procedure.
- Similarly, if the rates of TDS mentioned in old certificates are higher and the taxpayer wants revision of the rates in view of impact of Covid-19 outbreak on its business, the relaxation as provided in order dated 31 March 2020 (i.e. extension of the 197 certificate till 30 June 2020) shall not apply to such cases and they have to apply afresh as per the modified procedure.
The above circular and clarification have marginally addressed the concerns of industry. Further, as regards modified procedure through email which is prescribed in certain cases, it has to be seen practically how it will work in a lockdown situation due to certain practical challenges. However, the intent of the administration is laudable in these circumstances.
In a nutshell, we can say that the issue of the circular and clarification by the CBDT in a timely manner is a welcome measure in difficult times where the industry is already combating the impact of Covid-19. It shows that the government is really concerned about the hardships faced by taxpayers.
[The views expressed are strictly personal.]
1 In the CBDT clarification this date is mentioned as 31 March 2010 erroneously.
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