Lower TDS Certificate (Form 128): Get Lower or Nil Deduction
A lower TDS certificate tells your customers to deduct less tax, or none at all, because your real tax bill will be smaller than the TDS they would cut. Under the Income-tax Act 2025 you apply on Form 128 through the TRACES portal. We prepare the income estimate, file the application and answer the Assessing Officer’s questions.
What it is
A lower TDS certificate is an order from your Assessing Officer. It names the payers, the payments covered and the rate at which they must deduct tax, which can be below the normal rate or zero. Without it, every customer deducts at the full statutory rate and your money waits with the department until your return is processed.
Until 31 March 2026 this was section 197 of the Income-tax Act 1961, applied for on Form 13. From 1 April 2026 the Income-tax Act 2025 applies. Section 395 covers lower or nil deduction, section 395(3) covers lower collection (TCS), and the application is Form 128 under Rule 213 of the Income-tax Rules 2026, filed electronically on the TRACES portal. Your payers report what they cut through TDS return filing, which is why your credit shows up only later.
Who it applies to
Thin-margin contractors and service providers
Picture a Gurugram civil contractor billing a builder every month. Bills are large, profit is thin. The builder deducts a fixed percentage of each payment, yet the final tax is a fraction of that. Here is the catch: the gap sits as credit for months.
Businesses with losses or big deductions
Brought-forward business losses, unabsorbed depreciation or heavy eligible deductions pull your estimated tax down. A certificate lets the deduction match that lower figure.
Non-residents and companies with high withholding
Where the withholding rate is higher than the tax you will actually owe in India, the Assessing Officer can fix a lower rate on the payer’s remittance. The core test is the same: your estimated total income must justify it.
Why it matters
Cash stays in the business
In practice, a Faridabad vendor supplying a large factory sees tax cut from every payment. It returns only after the return is processed. A certificate keeps that money in your working capital.
No waiting for a refund
Excess TDS returns only through your income tax return. With a certificate, there is little excess to wait for, which also means fewer mismatches when you prepare your income tax return.
Clear instructions for payers
The certificate states the payer, the rate, the limit and the validity period. Your customer’s accounts team can act on it without a long email thread.
Documents required
About you
- PAN of the applicant
- Estimate of total income and tax for the tax year
- Income tax returns, audit reports and financial statements for the last four years
- Details of carried-forward losses and unabsorbed depreciation
About your payers
- Name and TAN of every deductor or collector
- Projected receivables from each payer
- Contracts, work orders or invoices that support the projection
- Details of any lower deduction certificate already held
About tax already paid
- Advance tax paid so far
- TDS and TCS credit already shown in Form 26AS / AIS
- Refund history of recent years
- Income that you claim as exempt, with a short note
How it works
Estimate your income for the tax year
We work from your books and your customer forecasts to build a realistic income and tax estimate. The Assessing Officer tests this number, so it has to match your records.
Prepare Form 128
We pick the right applicant category and annexures, list every payer with its TAN and projected receivable, and attach the four-year data. TCS cases use the separate collection annexure.
File on TRACES and track it
The form goes in electronically on the TRACES portal. If the Assessing Officer raises a query, we draft the reply and upload the supporting papers.
Download, check and share the certificate
We verify the payer name, rate, monetary limit and validity dates, then you share it with your deductors before the next payment is made.
Timelines
Apply before the payment is made
Tax already deducted cannot be reversed. So apply well before your next big receipt. Processing time depends on the Assessing Officer, and we do not promise a fixed turnaround.
One tax year at a time
A certificate covers payments during the period it states. For tax year 2026-27 that means 1 April 2026 to 31 March 2027. An old section 197 certificate issued for 2026-27 receivables stays valid for payments on or after 1 April 2026.
Apply again if numbers change
There is no statutory cap on applications in a year. If your income estimate or customer list changes mid-year, you can file a fresh Form 128.
Form 128 or Form 121: which one do you need?
Form 128 is an order from the Assessing Officer for any person. Form 121 is a self-declaration that replaces the old Forms 15G and 15H and is meant for individuals with nil tax liability.
| Point | Form 128 | Form 121 |
|---|---|---|
| What it replaces | Form 13 (section 197) | Forms 15G and 15H (section 197A) |
| Who can use it | Any resident or non-resident person, including companies, firms and LLPs | Resident individuals and eligible non-company applicants, not companies or firms |
| Who decides | Assessing Officer | You declare it to the payer |
| Where it goes | TRACES portal | Directly to the bank or payer |
| Condition | Estimated income justifies a lower rate | Tax on estimated total income is nil |
If you run a business or company, Form 128 is your route.
What happens if you apply late or skip it
Full-rate deduction continues
Your customers must deduct at the normal rate until a valid certificate reaches them. Tax already cut stays cut. You can only claim it as credit when you file your return.
Your cash waits for a refund
Excess TDS comes back through the refund process after your return is filed and processed.
Misuse can cancel the benefit
A certificate is valid for the specified period unless the Assessing Officer withdraws or modifies it. Using it for a different payer, year or amount beyond the stated limit invites trouble.
Frequently asked questions
What is a lower TDS certificate?
It is an order from your Assessing Officer that allows payers to deduct tax at a lower rate, or not at all, on specified payments to you. It is issued when your estimated total income justifies the lower rate. It changes only the timing of tax, not your final liability.
Which section and form apply now?
Section 395 of the Income-tax Act 2025 covers lower or nil deduction, and the form is Form 128 under Rule 213 of the Income-tax Rules 2026. It replaces section 197 and Form 13 for payments from 1 April 2026. You file it on the TRACES portal.
Who can apply for a lower TDS certificate?
Any resident or non-resident person who receives income on which tax is deducted can apply, including companies, firms, LLPs and proprietors, as long as the estimated income justifies a lower rate. The applicant must be the actual recipient of the income. Share your receipts and payers, and we will tell you if your case is strong enough.
When should I apply for the certificate?
Apply before the payment is made, ideally at the start of the tax year or as soon as you see a gap between TDS and tax. A certificate cannot reverse tax already deducted. Allow a few weeks, since the Assessing Officer may ask questions.
What documents does Form 128 need?
You need your PAN, payer details with TAN, an estimate of income and tax, advance tax and TDS credit details, and the last four years’ returns, audit reports and financial statements. We pull most of it from your books.
How long is the certificate valid?
It is valid for the period and amount stated in the certificate, for the tax year whose receivables were certified. For tax year 2026-27, that runs from 1 April 2026 to 31 March 2027. The Assessing Officer can withdraw or modify it, and you can apply again if your income changes.
Can I get the certificate after TDS is already deducted?
No. The certificate works only for payments made after it is issued and shared with the payer. Tax already deducted is claimed as credit when you file your income tax return, and any excess comes back as a refund.
Is Form 128 the same as Form 15G or 15H?
No. Forms 15G and 15H are replaced by Form 121 under the Income-tax Act 2025. That is a self-declaration for individuals whose tax is nil, given directly to the payer. Form 128 is an application to the Assessing Officer, open to companies and firms too, and it can fix a lower rate, not only nil.
What does Taxhint do in this process?
We prepare the income estimate and Form 128, file it on the TRACES portal, reply to Assessing Officer queries and help you track the certificate’s limit and validity. The Assessing Officer decides the rate, so we cannot promise a particular outcome. Where the work needs a practising CA to certify figures, a qualified professional signs it.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
Ready to begin?
Send us your last return and a list of your payers. We will tell you within a working day whether a certificate makes sense for you.