Circular No. 147

What it does

Tells employers what to do when an employee says his salary is not chargeable and asks that no tax be deducted. The employer must require the employee to produce a certificate from the Income-tax Officer under section 197(1) authorising nil deduction or deduction at a lower rate. Without such a certificate the employer must deduct at the normal rates.

Why it was issued

Employers needed a clear line on whether an employee's own assertion of non-taxability could relieve them of the section 192 obligation.

Who it reaches

Employers and Drawing and Disbursing Officers
Employees claiming their salary is exempt
Income-tax Officers issuing certificates under section 197(1)

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.192	s.392, s.402
s.197	s.395, s.400

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

DEDUCTION OF TAX AT SOURCE
SECTION 192 l SALARY
943. Employee claiming that salary is not chargeable to tax and no income-tax should be deducted at source - Employer to require employee to obtain certificate under section 197(1)
Under the provisions of section 192, any person responsible for paying any income chargeable under the head "Salaries" is required at the time of payment to deduct income-tax from the amount payable. In any case where an employee claims that his salary is not chargeable to income-tax and, therefore, no income-tax should be deducted at source from the salary receivable by him, the employer should require the employee to obtain from the concerned Income-tax Officer a certificate under section 197(1) authorising no deduction or deduction at such lower rates as may be prescribed in the said certificate. In the absence of such a certificate from the employee, the employer should deduct income-tax on the salary payable at the normal rates.
Circular: No. 147 [F. No. 275/80/74-ITJ], dated 28-10-1974.

What to watch

The employee's word, however confidently given, is no defence for the employer; only the Income-tax Officer's certificate is.
The certificate may authorise nil deduction or merely a lower rate, and the employer must deduct at whatever it specifies.
Failing to deduct without a certificate leaves the employer exposed as an assessee in default.

Where you meet it

On a section 201 proceeding against an employer who stopped deducting because an employee claimed exemption.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 02 /2023 — Procedure format and standards for filling an application for grant of certificate under sub rule 4 and its proviso of r 27 September 2023
Circular No. 4/2023 — Clarification regarding deduction of TDS under section 192 read with sub-section (1A) of section 115BAC of the Income-ta 5 April 2023
Circular No. 24/2022 — Government of INDIA 7 December 2022
Circular No. 10/2022 — Circular regarding use of functionality under section 206AB and 206CCA of the income tax act 1961 17 May 2022
Circular No. 4/2022 — Government of INDiA 15 March 2022
Circular No. 11/2021 — Circular regarding use of functionality under Section 206AB and 206CCA of the Income-tax Act, 1961 21 June 2021

← Circular No. 148 · Circular No. 146 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.

What this is