How to Apply for Lower Deduction Certification on TRACES Portal (Nil or Low TDS Guide)
Created By :
Vikas Sharma
Tax Deducted at Source (TDS) helps the government collect tax regularly during the year but for many taxpayers, it often results in excess tax being deducted upfront—far more than their actual tax liability. To address this mismatch and ease cash flow pressures, the Income-tax Act allows taxpayers to apply for a Lower or Nil Deduction Certificate (LDC) – an option that ultimate results in lower tax liability for the concerned company / individual.
A Lower Deduction Certificate (LDC) is issued by the tax authorities and allows TDS to be deducted at a rate lower than the applicable rate. This certificate is beneficial for companies and individuals who believe that their overall tax liability would be less than the TDS rate and thus help in improving the cash flow by saving excess tax deduction.
In this blog, we explain what LDC is, who can apply for it, and a step-by-step process to apply through the TRACES ((TDS Reconciliation Analysis and Correction Enabling System) portal. It also outlines how AKM Global can assist in obtaining the certificate smoothly with minimal disruption to business operations.
What is a Lower Deduction Certificate?
As per the provisions of the Income-tax Act, 1961 (the Act) persons making certain payments such as dividends, rentals, payment for professional services, etc. to a resident or a non-resident taxpayer are required to withhold certain tax from the said payment.
Such amount deducted is known as TDS or withholding tax (WHT) and can be claimed as a credit by the recipient of such income while filing the tax return. In the case of resident taxpayers, such credit is adjusted against their final tax liability in India. In the case of a non-resident recipient, such WHT can be claimed as foreign tax credit subject to the domestic tax laws of the concerned country and tax treaties. Sufficient proof is required to be given by the non-resident in his residence jurisdiction which could be in the form of withholding tax certificate.
In light of the above, the Act allows eligible persons or entities to apply to the Indian tax authorities for an LDC. This certificate specifies the reduced rate at which tax may be deducted by the person responsible for making the payment.
Who Can Apply for a Lower Deduction Certificate?
LDC can be applied by both resident and non-resident taxpayers, including:
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Resident individuals
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Resident companies
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Partnership firms and LLPs
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Trusts and other entities
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Non-resident individuals
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Non-resident companies and foreign entities
An LDC is beneficial where the taxpayer:
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Has lower taxable income or profit margins
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Has brought forward losses or unabsorbed depreciation
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Is eligible for deductions, exemptions, or tax credits
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Is subject to high withholding rates, especially in cross-border transactions
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Expects refunds due to excess TDS/WHT
To obtain an LDC, the applicant is required to file Form 13 electronically on the TRACES portal. The application must be supported by relevant financial and tax information, accompanied by financial documents such as balance sheet, tax return, and income etc. for the financial year. This application will be checked by the tax authorities to decide on their eligibility for the reduced deduction rate.
Step-by-Step Application Process
Step 1: Register on the TRACES Portal:
First, an applicant must obtain registration on the TRACES Portal as a taxpayer or deductor. Required details typically include:
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Permanent Account Number (PAN) of the applicant,
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Date of Incorporation,
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Challan details of tax deposited by taxpayer / details of TDS/TCS Deposited, and
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Postal Address of the applicant
Step 2: Submit Online Application:
The application must be filed electronically through Form 13 on the TRACES portal. This portal, managed by the Income Tax Department, connects all stakeholders involved in the administration of TDS/TCS.
Step 3: Upload Supporting Documents:
Along with the application, the following documents are generally required:
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Self/Authorized person certified estimated income computation for the relevant financial year.
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Details of exempt incomes (if any) not included in the above computation.
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Assessment orders, if any, for the last 4 years.
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Provisional financial statements for the preceding financial year (if audited/approved accounts are not finalized).
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Projected financial statements for the current financial year.
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Provisional computation of income for the relevant previous year.
Note: The documentation and information requirements may differ depending on the specific transaction under consideration.
Step 4: Assignment to Tax Authority:
The application is automatically assigned to the concerned jurisdictional tax authority for review.
Step 5: Scrutiny by Tax Authority:
Before making a decision regarding the application, the Assessing Officer can ask for further details or explanation, such as demand status pending against the applicant’s PAN/TAN, or other relevant documents.
Step 6: Issuance of Certificate:
Once the application is accepted, the tax authorities may issue the certificate, which specifies:
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The relevant section(s) under which tax is to be deducted,
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The lower rate of deduction,
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The threshold up to which payments may be made at the reduced rate, and
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The period of validity.
Step 7: Implementation:
Once the LDC is issued, the TDS rate stated in the certificate will apply, and the deductors will be required to withhold taxes in accordance with the LDC.
Step 8: Validity of Certificate:
The certificate remains valid for the period mentioned in the certificate, unless revoked by the tax authorities.
An LDC helps taxpayers balance effective cash flow management with the need to avoid excessive tax deductions while remaining compliant with tax regulations. Understanding the nuances and benefits of an LDC can reduce reliance on lengthy refund cycles and minimize the administrative burden of filing income tax returns solely to claim refunds, where applicable.
With increased digital processing and scrutiny, accurate filing and documentation have become more important than ever.
AKM Global has extensive experience assisting clients through the application process, ensuring timely submission and effective representation through each step of the process.
How AKM Global Can Help
AKM Global supports clients by:
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Collating the documents as required to file the application for LDC with the Jurisdictional Assessing Officer (AO) in India.
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Filing Form 13 (application for obtaining lower deduction certificate) with the AO,
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Representation before the AO,
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Collating the information requested by the AO by way of any notices issued in this regard
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Preparing submissions with respect to the notices issued by the AO to seek additional information.
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Get in touch with us or mail info@akmglobal.in for more information on the process for applying for LDC.
Frequently Asked Questions (FAQs)
1. What is the validity period of an LDC?
Generally, Tax Authorities issue LDC for a particular type of transaction and is valid only for a specific financial year (FY), starting from the date of issuance till the end of the FY, unless it is revoked by the tax authorities before its expiry. For example, LDC issued in FY 2025-26 will be valid until 31st March 2026.
If the taxpayer intends to continue availing the benefit of reduced rate of tax deduction in the subsequent year, a fresh application (i.e. Form 13) must be filed for that year along with updated income estimates and supporting documentation.
2. Can individuals apply for an LDC?
Yes. Any person expecting their tax liability to be lower than the standard TDS rate can apply, including business owners, contractors, and freelancers.
3. What if my application is rejected?
In case an LDC application is rejected, it would result in higher tax deduction at the standard TDS rate than the actual tax liability. However, the taxpayer can claim the excess amount as refund when filing their Income Tax Return in India.