Lower or Nil TDS Certificate: How to Apply Under the Income Tax Act 2025 (Form 128)

If tax would be deducted from your income at a rate higher than your real tax liability, you can ask the Assessing Officer for a lower or nil TDS certificate under section 395(1) of the Income-tax Act, 2025. The application is made in Form No. 128 (rule 213). Once the certificate is issued, the person paying you must deduct tax only at the rate printed on it, or deduct nothing, for as long as it is valid.

This guide covers who can apply, what the officer looks at, the special forms for interest income (Form 126) and payments to non-residents (Form 129), validity, cancellation and the mistakes that cause trouble. Every point is taken from section 395 as amended by the Finance Act, 2026 and the Income-tax Rules, 2026, with the provision number alongside. Last reviewed on 10 November 2026. Examples use tax year 2026-27.

What is a lower or nil TDS certificate?

TDS (tax deducted at source) is deducted by the payer at the rates in the Act, whatever your final tax turns out to be. If your total income for the year is small, or you already pay most of your tax through advance tax and other deductions, the deduction can lock up money that you will only get back as a refund.

Section 395(1) gives the payee a way out. The payee applies to the Assessing Officer (AO). If the AO is satisfied that the payee's total income justifies a lower rate or no deduction, the AO issues a certificate. Under section 395(1)(c), the payer then deducts at the certificate rate, or deducts no tax, till the certificate's validity ends.

Who can apply, and for what?

Situation	Provision	Form	Who applies
Lower or nil deduction of tax	Section 395(1); rule 213(1)(a)	128	The payee (person receiving the income)
Lower collection of tax (TCS)	Section 395(3); rule 213(1)(b)	128	The buyer, licensee or lessee
Interest or other sums received without deduction (specified banks and branches)	Section 395(1); rule 209	126	The payee that meets the rule 209 conditions
Payment to a non-resident where only part of the sum is chargeable to tax	Section 395(2); rule 214	129	The payer, not the non-resident

Rule 213(2) says Form 128 may not apply to a person who is eligible for a no-deduction certificate under rule 209. Such a person uses Form 126 instead.

How do you apply for a lower TDS certificate in Form 128?

Section 395(1)(a) says the application goes to the Assessing Officer. Section 395(6), inserted from 1 April 2026, adds a second route: the application may also be filed before a "prescribed income-tax authority", who can verify the contents electronically and either issue the certificate or reject the application if the prescribed conditions are not met or the application is incomplete. The conditions for this route are left to the rules, and I did not find them in the rule text used for this article, so check the current notified procedure on the Income-tax portal before you file.

What does the officer check before issuing it?

Rule 213(3) lists what the AO takes into consideration:

• tax payable on your estimated income for the tax year;
• tax paid or payable on your returned, assessed or estimated income of the last four tax years;
• your existing liability under the Act and under the Income-tax Act, 1961 as it stood before repeal; and
• advance tax, TDS and TCS already credited to you on the date of application for that tax year.

Two groups face extra checks under rule 213(4): a specified entity under section 263(9)(c) and a registered non-profit organisation. The AO must also see that the entity is approved for exemption on the date of application and on the date of grant, and that it has filed returns for the last four tax years whose due date has passed.

For a certificate on dividend income (section 393(1), Table Sl. No. 7), rule 213(5) adds that the shares must be shares in public companies, standing in the applicant's name and beneficially owned by the applicant (or held for a registered non-profit organisation whose dividends are exempt). Under rule 213(6), such a certificate stops operating, to the extent of the shares transferred, from the date of notice to the company for transferring them.

Worked example 1: how a lower rate changes the cash you receive

Assumptions (illustrative): Meena is a consultant. In 2026-27 she expects to bill Rs 12,00,000 to one client. The normal TDS rate on that payment is taken as 10% for this example, and her certificate in Form 128 specifies 2% for the full Rs 12,00,000. Her estimated tax for the year is small because of her deductions and advance tax already paid.

Step	Without certificate	With certificate
Billing for the year	Rs 12,00,000	Rs 12,00,000
Rate applied	10%	2%
TDS deducted (12,00,000 x rate)	Rs 1,20,000	Rs 24,000
Cash received	Rs 10,80,000	Rs 11,76,000
Cash that stays with Meena through the year	-	Rs 96,000 (1,20,000 minus 24,000)

The certificate changes only the timing. Her actual tax for the year is settled in her return, and the final tax does not change because of the certificate.

Worked example 2: payments above the certified amount

Rule 213(8)(a) makes the certificate valid only for a specified payment from the specified deductor, to the extent of the amount specified in the certificate. A certificate is therefore a ceiling, not an open permission.

Assumptions (illustrative): Ravi Traders gets a certificate for a client's payments up to Rs 20,00,000 in 2026-27 at 2%. The normal rate for the payment is taken as 10%. The client ends up paying Rs 26,00,000 in the year, and I assume the excess falls outside the certificate, so the normal rate applies to it.

1. Payments covered by the certificate: Rs 20,00,000 x 2% = Rs 40,000.
2. Payments above the certified amount: Rs 26,00,000 minus Rs 20,00,000 = Rs 6,00,000.
3. TDS on the excess at the normal rate: Rs 6,00,000 x 10% = Rs 60,000.
4. Total TDS for the year: Rs 40,000 + Rs 60,000 = Rs 1,00,000.

If Ravi expects higher billings, the sensible step is to estimate them honestly when applying, rather than being surprised mid-year.

Is a certificate always needed? The Form 121 declaration alternative

If your estimated tax for the year is nil and you fall in the categories of section 393(6), you may not need a certificate at all. You can give the payer a written declaration in Form No. 121 (rule 211(1)), and the payer then makes no deduction on the listed payments. The table in section 393(6) covers a resident individual (for example rent, interest, insurance commission, dividend and units income) and, for a smaller list, other persons that are not a company or a firm.

The declaration route is limited by the note to that table. Except for a resident individual aged 60 or more, it does not apply if the listed income credited or likely to be credited in the year exceeds the maximum amount not chargeable to tax. The payer must report the declarations in the TDS statement even for a quarter in which no tax was deducted (rule 211(4)). A certificate under section 395 is the route when the payment is not in that table, or when the aim is a lower rate and not a nil deduction.

How long is the certificate valid, and when can it be cancelled?

• Form 128 certificates: valid for the period of the tax year specified in the certificate, unless the AO cancels it earlier (rule 213(7)).
• Form 126 certificates (rule 209): valid for the tax year specified, unless cancelled before the year ends (rule 209(2)). A fresh application can be made after the earlier certificate expires, or within three months before it expires (rule 209(3)).
• Cancellation: under section 395(5) the AO may cancel a certificate under section 395(1) or (3), but only after giving the applicant a reasonable opportunity to be heard.

What is the no-deduction certificate under rule 209 (Form 126)?

Rule 209 is a narrower route for interest and certain other sums of the kind in section 393(2) (Table: Sl. No. 17). Two kinds of payee qualify:

Payee	Conditions	Income covered
Banking company or insurer that is not a domestic company and operates in India through a branch	Regularly assessed and returns filed for the last five tax years; not in default for any tax, interest, penalty or fine; income received by the branches on their own account	Interest (not being interest on securities, other than securities referred to in section 393(4), Sl. No. 6) or any other sum that is not a dividend
Any other person carrying on business or profession in India through a branch	All conditions above, plus five continuous years of business or profession in India, plus fixed assets in India of more than Rs 50 lakh as shown in the books for the preceding tax year	Any sum that is not interest or dividends

What if you pay a non-resident and only part of the sum is taxable? (Form 129)

Section 395(2) turns the application around. Here the payer applies, in Form No. 129 (rule 214(1)), where the payer thinks the whole sum paid to a non-resident would not be chargeable to tax in the recipient's hands. The AO then works out the appropriate proportion that is chargeable, looking at the Act and any double taxation agreement (rule 214(2)). Tax under section 393(2) (Table: Sl. No. 17) is deducted only on that proportion.

The certificate is valid only for the named non-resident and for the period specified, unless cancelled earlier (rule 214(4)). A fresh application can be made after expiry or within three months before it (rule 214(5)).

Worked example 3: tax on the chargeable proportion

Assumptions (illustrative): Rs 10,00,000 is to be paid to a non-resident in 2026-27. The AO determines that 40% of the sum is chargeable to tax. For this illustration the applicable rate is taken as 20%.

1. Chargeable portion: Rs 10,00,000 x 40% = Rs 4,00,000.
2. Tax deducted: Rs 4,00,000 x 20% = Rs 80,000.
3. Without the certificate, tax on the full Rs 10,00,000 at 20% would be Rs 2,00,000.

If the payment also crosses Rs 5,00,000 for the year, rule 220(1)(b) requires information in Part B of Form 145 where a certificate or order has been obtained from the AO under section 395(1) or (2).

Real-life scenarios

Meena, the freelance consultant. Her client deducts TDS on every invoice. Her estimated total income for the year is low and her advance tax and earlier deductions are already credited. She applies in Form 128 before the first big invoice, the officer reviews her last four years of returns, and the certificate goes out in her client's name. The client deducts less from each invoice from that point.

Ravi, the contractor who waited. Ravi applied in the middle of the year. The certificate applied only for the period it specified, so TDS had already been deducted at the full rate on the earlier invoices. He will recover that excess only through his return. Applying early in the tax year avoids this.

Kavita, the payer with a lapsed certificate. A vendor gave Kavita's firm a lower-rate certificate. Her accounts team kept using it after the specified period ended. Once the validity ends, the certificate no longer covers the payment, so the firm should check the end date on the certificate before every deduction.

Common mistakes

• Applying late. The certificate covers only the period and amount it specifies. Tax already deducted before that is not undone by it.
• Using Form 128 when Form 126 applies. Rule 213(2) excludes persons eligible under rule 209.
• Understating expected receipts. The certificate is limited to the amount specified. Payments beyond it do not get the benefit.
• Letting the certificate lapse. Apply for a fresh one within three months before expiry where rule 209(3) or rule 214(5) applies.
• Payer ignoring the certificate details. The certificate is issued in the payer's name for a specified payment. A certificate meant for one deductor cannot be used with another.
• Non-resident recipient filing the application. For Form 129 the application is by the payer, not the non-resident recipient.

Quick reference

Item	Rule
Application for lower or nil deduction, or lower collection	Form 128 (rule 213(1))
No-deduction certificate for specified banks, insurers and branches	Form 126 (rule 209(1))
Proportion of sum chargeable, payment to non-resident	Form 129 (rule 214(1))
Look-back for officer	Last four tax years (rule 213(3)(b))
Rule 209 fresh application window	After expiry or within three months before it (rule 209(3))
Rule 214 fresh application window	After expiry or within three months before it (rule 214(5))
Cancellation	By the AO after a reasonable opportunity (section 395(5))
If more than 100 deductors are likely and details are unknown	Issued in the applicant's name, generated from the portal (rule 213(9))

Where this is in the Act

• Section 395(1): payee application and certificate for lower or nil deduction.
• Section 395(2): payer application for the chargeable proportion of a payment to a non-resident (section 393(2), Table Sl. No. 17).
• Section 395(3): lower collection of tax (TCS).
• Section 395(4): certificate of tax deducted or collected, issued by the deductor or collector (see rule 215 for forms and dates).
• Section 395(5): cancellation of a certificate.
• Section 395(6): application to the prescribed authority, with electronic verification.
• Rules 209, 213, 214: Forms 126, 128 and 129. Rule 220: Form 145 for payments to non-residents.

For the rates this certificate modifies, see our TDS rates chart under section 393. For one common case in detail, see TDS on rent.

For a CA firm, the hard part is tracking which clients hold a certificate, what amount it covers and when it ends, so that the next application goes in before expiry. Finexo's practice management software lets you keep those dates and tasks against each client and reminds the team before they lapse. It does not file Form 128 for you.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.