Lower TDS certificate: section 197 becomes section 395, Form 13 becomes Form 128

What the certificate does

Deduction rates are set by the nature of the payment, not by the payee's actual tax position. A payee whose expected liability for the year is well below the deducted amount would otherwise finance the government all year and claim a refund later.

The certificate closes that gap. The payee applies to the Assessing Officer, and the officer, on being satisfied that the total income justifies a lower rate, issues a certificate stating the rate and the period it covers. The official forms FAQ says the substantive provisions remain the same under the new Act.

Who actually needs one

The application is worth the effort where the deducted amount will clearly exceed the year's liability. The recurring cases look like this.

• A loss-making or early-stage entity with substantial receipts that attract deduction at the full rate.
• A payee whose income is largely exempt or sheltered, so the deduction has no liability to settle against.
• A non-resident seller of property, where 1 per cent on the buyer side is not the applicable machinery and the deducted sum can be far larger than the gain.
• A contractor or professional whose margin is thin, so a rate set on gross receipts overshoots tax on net income.

Where the payee simply has no taxable income at all, the self-declaration route may fit better than a certificate. That is the Form 15G and 15H path, now Form 121, and it is a declaration by the payee rather than an order by an officer.

Section 197 becomes section 395(1)

The official forms FAQ maps the provision directly: the old section 197 mechanism corresponds to section 395(1) of the Income-tax Act, 2025. The application form changes with it.

Existing certificates do not fall away at the cutover. The FAQ states that a certificate issued under section 197 remains valid for payments or credits on or after 1 April 2026 where it was issued for projected receivables of tax year 2026-27. Read the validity window written on the certificate rather than assuming either outcome.

How the payer uses the certificate

On the payer side the certificate is a field on the statement, not a side letter kept in a drawer. The official Form 141 page shows this plainly: the deductee panel asks whether section 395(1) applies, and if yes, requires the certificate number issued by the Assessing Officer before the rate can be entered.

1. Collect the certificate before the first deduction it is meant to cover. It does not apply retrospectively to a payment already deducted at the full rate.
2. Check the payee named on it, the rate, and the period. A certificate for one payee does not travel to a group company.
3. Record the certificate number against that deductee on the statement, and keep the certificate with the deduction file.

How to confirm on official pages

1. Read the lower-withholding answers on the official Income Tax Forms FAQ. That page carries the section 197 to section 395(1) mapping, Form 128, and the validity of an existing certificate.
2. Check the certificate field on the official Form 141 page if you are the payer on a PAN based statement.
3. Read section 395 for the provision itself, and file only through e-Filing or TRACES.

Where Complied AI fits

The test the officer applies is in the Act. What moves is the form, the portal route, and any clarification on how long an old certificate runs. CBDT updates on Complied AI keep those beside section 395, so a payee applying in the second quarter is not filling last year's form.