Sub-section (1) deals with lower or nil deduction of tax. Subject to the rules, the payee may apply to the Assessing Officer for deduction at a lower rate or for no deduction; the Assessing Officer, on being satisfied that the payee's total income justifies it, shall issue an appropriate certificate; and under clause (c), as substituted by Act No. 4 of 2026 with effect from 1 April 2026, where a certificate is issued under clause (b) or under sub-section (6), the person responsible for paying the income or sum shall deduct tax at the rate specified in the certificate, or deduct no income-tax, as the case may be, till its validity. The earlier clause (c) referred only to a certificate issued under clause (b).
Sub-section (2) covers payments to a non-resident of any sum mentioned in section 393(2) (Table: Sl. No. 17). The payer, if he considers that the whole of the sum would not be chargeable in the recipient's case, may apply to the Assessing Officer in the prescribed form and manner; the application is for determination of the appropriate proportion of the sum chargeable to tax; and once the Assessing Officer makes that determination, tax under section 393(2) (Table: Sl. No. 17) is deducted only on the proportion chargeable to tax.
Sub-section (3) is the collection counterpart: subject to the rules, a buyer, licensee or lessee may apply to the Assessing Officer for collection of tax at a lower rate; the Assessing Officer shall issue an appropriate certificate on being satisfied that the person's total income justifies it; and the person responsible for collecting tax shall collect at the rates specified in the certificate till its validity.
Sub-section (4) requires two certificates to be issued outwards. Clause (a) requires every person deducting or collecting tax to issue a certificate to the deductee or collectee specifying the amount of tax deducted or collected, the rate, and any other prescribed particulars, within the prescribed period. Clause (b) requires an employer referred to in section 392(2)(a) to issue a certificate to the employee, in respect of whose income the employer has paid the tax, that the tax has been paid to the Central Government, specifying the amount, the rate and any other prescribed particulars, within the prescribed period.
Sub-section (5) allows the Assessing Officer to cancel a certificate granted under sub-section (1) or (3) after giving the applicant a reasonable opportunity. Sub-section (6), inserted by Act No. 4 of 2026 with effect from 1 April 2026, allows the application under sub-section (1)(a) to be filed also before the prescribed income-tax authority, subject to prescribed conditions; that authority, on electronic verification of the contents of the application, may either issue a certificate for deduction at a lower rate or for no deduction, or reject the application for non-fulfilment of the prescribed conditions or for being incomplete.
Why it is there
Deduction and collection at source are calibrated to a class of payment, not to the recipient's actual position, so a payee whose total income does not justify the standard rate would otherwise be over-deducted and left to claim a refund. The certificate route corrects that in advance and binds the payer, and sub-section (2) does the same job for a payment to a non-resident where only part of the sum is chargeable at all. Sub-section (4) closes the loop by giving the deductee documentary proof of what was taken from him.
Who it applies to
A payee applying for deduction at a lower rate or for no deduction
A person responsible for paying income or a sum from which tax is to be deducted
A person paying a non-resident any sum mentioned in section 393(2) (Table: Sl. No. 17)
A buyer, licensee or lessee applying for collection of tax at a lower rate
A person responsible for collecting tax at source
An employer referred to in section 392(2)(a) who has paid tax on an employee's income
The Assessing Officer issuing or cancelling a certificate, and the prescribed income-tax authority acting under sub-section (6)
What this means in practice
A certificate is not advice to the payer; it is a direction. Clause (1)(c) says the person responsible for paying shall deduct at the rate specified or deduct nothing, for as long as the certificate is valid, and sub-section (3)(c) says the same for collection — the payer has no discretion to deduct more out of caution. The two application routes serve different problems and should not be confused: sub-section (1) is about the rate, and is made by the payee on the strength of his total income; sub-section (2) is about the taxable proportion of a particular sum paid to a non-resident, and is made by the payer. Since 1 April 2026 there is a second door for the sub-section (1)(a) application — the prescribed income-tax authority under sub-section (6), which decides on electronic verification and may reject an incomplete application outright; the substituted clause (1)(c) makes a certificate issued that way binding on the payer in the same terms. A certificate is also revocable: sub-section (5) lets the Assessing Officer cancel one granted under sub-section (1) or (3), though only after a reasonable opportunity to the applicant.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
A contractor's total income for the year will not support deduction at the ordinary Chapter rate, so it applies under sub-section (1)(a) and receives a certificate for deduction at 1%. Every payer holding that certificate must deduct at 1% for as long as it is valid; sub-section (1)(c) leaves them no room to deduct at the higher rate to be safe. Separately, a company paying a non-resident a sum within section 393(2) (Table: Sl. No. 17) considers that only part of it is chargeable in the recipient's hands; it applies under sub-section (2), the Assessing Officer determines the chargeable proportion, and deduction is made only on that proportion.
Where you meet this section
You meet this section as the lower- or nil-deduction certificate a payee obtains and produces to its payers, as the determination the Assessing Officer makes on a payer's application about a sum paid to a non-resident, and as the deduction or collection certificate every deductor and collector must issue to you under sub-section (4).
The words themselves
when a certificate is issued under clause (b) or sub-section (6), as the case may be, the person responsible for paying the income or sum shall deduct the tax at the rate specified in such certificate, or deduct no income-tax, as the case may be, till its validity.
Section 395(1)(c), as substituted by Act No. 4 of 2026 w.e.f. 1-4-2026, Income-tax Act, 2025.
the tax shall be deducted under section 393(2) (Table: Sl. No. 17) only on that proportion of sum which is chargeable to tax under the Act
Section 395(2)(c), Income-tax Act, 2025.
may also be filed before the prescribed income-tax authority, subject to such conditions as may be prescribed, and such authority on electronic verification of the contents of the application
Section 395(6), as inserted by Act No. 4 of 2026 w.e.f. 1-4-2026, Income-tax Act, 2025.
The Assessing Officer may cancel the certificate granted under sub-section (1) or (3) after giving reasonable opportunity to the applicant.
Section 395(5), Income-tax Act, 2025.
What people get wrong
Deducting at the ordinary rate despite holding a certificate. Clause (1)(c) requires deduction at the rate specified in the certificate, or none at all, till its validity.
Assuming only the Assessing Officer can issue a lower-deduction certificate. Sub-section (6), inserted by Act No. 4 of 2026 with effect from 1 April 2026, allows the application to be filed before the prescribed income-tax authority, which decides on electronic verification.
Using sub-section (1) for a payment to a non-resident where the issue is chargeability rather than rate. Sub-section (2) is the route, it is applied for by the payer, and it determines the appropriate proportion of the sum chargeable to tax.
Treating a certificate as irrevocable. Sub-section (5) allows the Assessing Officer to cancel a certificate under sub-section (1) or (3) after a reasonable opportunity.
Applying sub-section (3) to a payee. It is available to a buyer, licensee or lessee, and it concerns collection of tax at a lower rate — there is no nil-collection certificate in that sub-section.
Overlooking the outward certificates. Sub-section (4) obliges every deductor and collector, and an employer under section 392(2)(a), to issue a certificate within the prescribed period specifying the amount and the rate.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
195 - Other sums
197 - Certificate for deduction at lower rate
203 - Certificate for tax deducted
206C - Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.
Rules of the Income-tax Rules, 2026 that work section 395. Where the rule’s own heading names the section we say so; the rest are marked on reading the rule, which is our derivation and not the department’s. A rule that serves the section silently and that we have missed will not appear here.
Rule 209 — Application by payee for certificate authorising receipt of interest and other sums without deduction of tax — on reading the rule
Rule 213 — Application for grant of certificates for deduction or collection of income-tax at any lower rates, or no deduction of income-tax — on reading the rule
Rule 214 — Application by payer for grant of certificate under section 395(2) or section 400(3) for determination of appropriate proportion of sum (other than salary), payable to non-resident, chargeable in case of recipients
Rule 215 — Certificate of tax deducted or collected at source to be furnished under section 395(4)
Rule 220 — Furnishing of information for payment to a non-resident, not being a company, or to a foreign company — on reading the rule
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
Circular No. 2/2026 — Order under section 119 of the Income-tax Act, 1961 for extension of timeline for issuance of tax deducted at source (TDS) certifi 2026-03-25
Circular No. 20/2021 — Guidelines under sub section 4 of section 194 o sub section 3 of section 194Q and sub section 1 i of section 206C of the income ta 2021-11-25
Circular No. 15/2019 — Issues in respect of payment of third installment under the Income Declaration Scheme, 2016- clarification on certain procedural i 2019-07-12
Circular 7/2014, dated 4-3-2014 — Dated 4 3 2014 section 200 of the income tax act 1961 deduction of tax at source duty of person deducting tax ex post facto extens 2014-03-04
Circular 4/2013 — Issuance of certificate for tax deducted at source in form no. 16 in accordance with the provisions of section 203 of the income t 2013-04-17
Press Release — CBDT clarifies "Vodafone was warned" 2012-05-02
Circular No. 7 — Section 239 of the Income-tax Act, 1961 - Refunds - Procedure for Refund of TAX Deducted at Source under section 195 to the Person 2011-09-27
Circular No. 9/2009 — Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to non-resident - Clarification regarding remittanc 2009-11-30
Circular No. 4/2009 — CBDT on Remittance to Non-residents under section 195 2009-06-29
Circular No. 7/2008 — Order under section 119(1) of the Income-tax Act, 1961 regarding exemption from the TDS provisions under section 197 read in conju 2008-08-01
Circular No. 6/2006 — TAX Deduction at Source - Issue of TDS Certificate under section 203 of the Income-tax Act - Cases of Truck/goods-carriage Operato 2006-06-23
Circular No. 4/2004 — Tax Deduction at Source on income from Deep Discount Bonds 2004-05-13
Circular No. 10/2002 — 1174. Submission of No Objection Certificate in case of remittance to a non-resident 2002-10-09
Circular No. 5 — 1177. Problems faced by assessees in getting due credit for tax deducted at source under section 199 2001-03-02
Circular No. 790 — Section 195 of the Income-tax Act, 1961 - Deduction at Source - Other Sums - Procedure for Refund of TAX Deducted at Source under 2000-04-20
Circular No. 780 — 149. Computation of income falling under section 10(23G) 1999-10-04
Circular No. 774 — 1174. Whether certificate issued under section 197(1) will be applicable only in respect of credit or payments, as the case may be 1999-03-17
Circular No. 769 — 1167. Procedure for refund of tax deducted at source under section 195 1998-08-06
Circular No. 767 — Submission of No Objection Certificate in case of remittance to a non-resident 1998-05-22
Circular No. 761 — 1184. Clarifications regarding use of Form No. 16 for pensioners where pensioners are drawing their pensions through banks 1998-01-13
Circular No. 759 — Submission of No Objection Certificate in case of remittance to a non-resident 1997-11-18
Circular No. 749 — 1183. Clarification regarding certificate for deduction of tax made by Central Government Departments who are making payments by b 1996-12-27
Circular No. 742 — Taxation of foreign telecasting companies—Guidelines for computation of income-tax, etc 1996-05-02
Circular No. 740 — 733. Taxability of interest remitted by branches of banks to the head office situated abroad, under the Foreign Currency Packing C 1996-04-17
Circular No. 728 — Applicable rates of taxes under the Double Taxation Avoidance Agreement between India and the United Arab Emirates 1995-10-30
Circular No. 716 — Section 194A l Interest Other Than "Interest on Securities" 1995-08-09
Circular No. 695 — 1163. Streamlining the procedure for obtaining authorisation for payment of sums to non-residents after deduction of tax at source 1994-11-29
Circular No. 660 — Section 206C l Profits and Gains from Business of Trading in Alcoholic Liquor, Forest Produce, ETC 1993-09-15
Circular No. 656 — Section 194D l Insurance Commission 1993-08-26
Circular No. 588 — 1162. Announcement by Finance Minister in Lok Sabha on 7-9-1990 regarding deduction of tax at source from payments in respect of s 1991-01-02
Circular No. 585 — Section 206C l Profits and Gains from Business of Trading in Alcoholic Liquor, Forest Produce, ETC 1990-11-27
Circular No. 370 — Clarification contained in Circular No. 155, dated 21-12-1974 reiterated to ensure proper computation of tax to be deducted at sou 1983-10-03
Circular No. 291 — 1688. Exemption limit of taxable income raised from Rs. 10,000 to Rs. 12,000 by Finance (No. 2) Act, 1980 - Person paying salary t 1981-02-04
Circular No. 288 — 1058. Whether payer would be liable to deduct tax at source from interest in a case where he follows mercantile system of account 1980-12-22
Circular No. 283 — 1689. Exemption limit of taxable income raised from Rs. 10,000 to Rs. 12,000 by Finance (No.2) Act, 1980 – Persons paying salary p 1980-09-25
Circular No. 282 — Section 44D l Royalty Income in Case of Foreign Companies 1980-09-22
Circular No. 277 — Instructions for deduction of tax at source from insurance commission during financial year 1980-81 at the rates specified in Part 1980-07-21
Circular No. 235 — 1693. Exemption limit raised - Employees drawing salary between Rs. 8,000 and Rs. 10,000 - Adjustment of tax deducted at source du 1977-12-19
Circular No. 227 — Instructions for deduction of tax at source from insurance commission during financial year 1977-78 at the rates specified in Part 1977-07-14
Circular No. 168 — 1074. Instructions for deduction of tax at source from interest other than interest on securities during financial year 1975-76 at 1975-06-09
Circular No. 155 — Clarification contained in Circular No. 155, dated 21-12-1974 reiterated to ensure proper computation of tax to be deducted at sou 1974-12-21
Circular No. 152 — 1158. Where whole payment would not be income chargeable to tax in the hands of recipient non-resident, person responsible for pay 1974-11-27
Circular No. 134 — 1073. Instructions for deduction of tax at source from interest other than interest on securities during financial year 1974-75 at 1974-05-16
Circular No. 94 — 1756. Instructions regarding application for certificate for deduction of tax at lower rates and obligations/liabilities of person 1972-11-15
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Notification No. 02 /2023 — Procedure format and standards for filling an application for grant of certificate under sub rule 4 and its proviso of rule 28AA o 2023-09-27
Notification No. 09/2019 — Procedure format and standards for issuance of certificate for tax deducted at source in part b of form no. 16 in accordance with 2019-05-06
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 395. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
AAR v Tiger Global International II HoldingsSupreme CourtHelps departmenttagged s.197 I hold a Mauritius trc. Can the department still deny me treaty relief on the capital gains?
AO v Nestle SASupreme CourtHelps departmenttagged s.195 My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
CIT v Reliance Telecom LtdSupreme CourtHelps departmenttagged s.195 The Tribunal recalled its whole order on my miscellaneous application. Will that recall survive?
Formula One World Championship Ltd v CITSupreme CourtHelps departmenttagged s.195 We had access to an Indian venue for only a few days in the year. Can that be a permanent establishment?
UOI v Tata Chemicals LtdSupreme CourtHelps taxpayertagged s.195 I deducted tax under s.195 because the officer told me to, and the CIT(A) has now held it was not deductible. Do I get interest on the refund, or…
Bently Nevada LLC v ITOHigh CourtHelps taxpayertagged s.197 The officer issued my 197 certificate at a higher rate without giving reasons. Can I challenge it?
Court On Its Own Motion v CITHigh CourtHelps taxpayertagged s.203 CPC has refused my TDS credit and adjusted the refund against an old demand. What did the Delhi High Court actually direct?
Manjeet Singh Chawla v Dy CIT (TDS)High CourtHelps taxpayertagged s.197 If the payment for the fall in option value is not salary, is it capital gains?
Nishithkumar Mukeshkumar Mehta v Dy CITHigh CourtHelps departmenttagged s.197 Is compensation for the fall in value of stock options taxable as salary if I keep the options?
PCIT v Future First Info Services P LtdHigh CourtHelps taxpayertagged s.197(1) The AO says I short-deducted TDS on director remuneration. Can he disallow the payment under 40(a)(ia)?
Sanjay Baweja v Dy CITHigh CourtHelps taxpayertagged s.197 My employer paid me for the fall in value of options I never exercised. Is that a perquisite?
Van Oord ACZ India P Ltd v CITHigh CourtHelps taxpayertagged s.195 The remittance to my foreign parent bore no tax. Can s.40(a)(i) still hit me for non-deduction?
CBDT Circular 13/2021CBDTCuts both waystagged s.206C(1H) Our purchase attracts both 194Q and 206C(1H). Do we deduct as buyer or does the seller collect?
How crypto is taxed in Indiatagged s.195 of the Income-tax Act 2025 How is crypto taxed in India — what rate, what TDS, what do I report, and what happens when the department writes to me?
TCS basicstagged s.206C What is TCS, which of my sales attract it, and how is it different from deducting TDS?
TDS on payments to non-residents: s.195tagged s.195 I am remitting money abroad to a foreign supplier. Must I deduct tax, and what do I file before the bank will send it?
Free calculators on VittSphere ONE for the very provision this page is about. They open in the same window.
TDS calculator— the rate, the threshold and the deduction on a given payment.
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.