Section 197

Section 197 — the law in short

What the courts have decided on section 197, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• AAR v Tiger Global International II Holdings Supreme CourtHelps departmentNo later treatment found
  I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
  Yes. A Tax Residency Certificate is a necessary eligibility requirement under s.90(4) but is not sufficient or conclusive evidence of residence, beneficial ownership or entitlement to treaty benefits, and the authorities may examine the substance of the arrangement. The Supreme Court set aside the High Court's judgment, restored the AAR's rejection and held the gains taxable in India.
• Transmission Corporation of A.P. Ltd v CIT Supreme CourtHelps department
  I am paying a foreign supplier for equipment and its erection. Most of the payment is cost, not profit. Must I deduct tax at source under section 195 at all?
  Yes. The Supreme Court held that any other sum chargeable under the provisions of this Act in section 195(1) is not confined to pure income profits. A sum is within the section if it is chargeable to tax, and that includes a sum in which income is hidden or embedded, such as a trading receipt of which only a fraction is taxable. The deduction is tentative, subject to regular assessment, and the payer's and recipient's protection lies in applying under section 195(2) or (3) or section 197 for a determination of the chargeable proportion or a lower or nil deduction.
• Manjeet Singh Chawla v Dy CIT (TDS) High CourtHelps taxpayerHigh Courts differ
  If the payment for the fall in option value is not salary, is it capital gains?
  On this decision, neither. The Karnataka High Court held that compensation for the diminution in value of stock options that were never exercised is a capital receipt not chargeable under any head, and quashed the order rejecting the employee's application for a nil withholding certificate.
• Nishithkumar Mukeshkumar Mehta v Dy CIT High CourtHelps departmentUnder appeal
  Is compensation for the fall in value of stock options taxable as salary if I keep the options?
  Yes, on this decision. The Madras High Court held that where the employee paid nothing for the options and kept all of them after receiving the compensation, the whole receipt was a perquisite taxable under the head Salaries, and refused the nil-deduction certificate sought under s.197.
• Sanjay Baweja v Dy CIT High CourtHelps taxpayerHigh Courts differ
  My employer paid me for the fall in value of options I never exercised. Is that a perquisite?
  No, on this decision. The Delhi High Court held that a one-time voluntary payment made to holders of unexercised stock options after a group disinvestment was not a perquisite under s.17(2)(vi), because the value of specified securities depends on the exercise of the option and no option had been exercised. The refusal of a nil-deduction certificate under s.197 was set aside.
• Molasi Primary Agricultural Cooperative Credit Society Ltd v ITO High CourtHelps department
  We are a primary agricultural credit society drawing cash to lend to farmers. Must the bank still deduct under s.194N?
  Yes. The Madras High Court held that a primary agricultural credit co-operative society is not within the exceptions to s.194N, so the deduction on cash withdrawals above the threshold stands, and the requirement is non-negotiable except in line with the specific exceptions in the proviso. Relief, if any, has to come from the competent government authority; s.194N is not one of the sections for which a nil or lower deduction certificate can be sought under s.197.
• Coursera Inc v. Income Tax Officer TDS 1(2)(1) — a s.197 order that ignored the 2021 amendment to s.10(50) was set aside, and the receipts exigible to equalisation levy must be excluded before the withholding rate is fixed High CourtHelps taxpayerNo later treatment found
  My non-resident client pays equalisation levy on its Indian receipts, and the Assessing Officer has still refused a NIL section 197 certificate and directed ten per cent withholding. What is the answer?
  The Delhi High Court set that order aside. The equalisation levy is charged by Chapter VIII of the Finance Act, 2016, not by the Income-tax Act; the join between the two statutes is section 10(50) of the Act, and the Finance Act 2021 amended that clause with effect from 1 April 2021 so that amounts taxable as royalty or fees for technical services under the Act read with the applicable treaty are excluded from the exemption. The Court held that the impugned order did not take that amendment into account, and gave no reasoning for the ten per cent rate at all — the officer's own file had recorded that the receipts were not royalty or fees for technical services under the India-US treaty and had recommended four per cent 'in the interest of Revenue'. The order was set aside with a direction to pass a de novo reasoned order within four weeks excluding, from the receipts subject to withholding, so much as is exigible to equalisation levy.
• Maple Logistics P Ltd v Pr Chief CIT High CourtHelps taxpayerSuperseded by amendment
  My refund is being withheld under s.241A because my case is in scrutiny. Is a scrutiny notice enough?
  No — but fix the year first. For AYs 2017-18 to 2022-23 the return had to be processed and the refund determined, and s.241A was the only route to hold it back: it needed a written, reasoned, approved order showing why paying THIS refund was likely to hurt the revenue, and repeating the words of the section, or pointing to the s.143(2) notice, is not a reason. Section 241A ceased to apply from 1 April 2023 (Finance Act 2023) and the withholding power now sits in s.245(2), which requires the same written reasons and the same previous approval of the Principal Commissioner or Commissioner. The reasoning below transfers, but for AY 2023-24 onwards the order to demand, and to attack, is a s.245(2) order.
• Bently Nevada LLC v ITO High CourtHelps taxpayer
  The officer issued my 197 certificate at a higher rate without giving reasons. Can I challenge it?
  Yes. An order under s.197 is quasi-judicial and must rest on valid and cogent reasoning applying the objective criteria in Rule 28AA. A 5% certificate issued on a superior officer's instruction, departing from a consistent 1.5% history without reasons, was quashed and remitted for a fresh reasoned order.
• Linde AG, Linde Engineering Division v DDIT High CourtHelps taxpayer
  Two foreign companies bid jointly for a turnkey contract and signed one contract with the customer. The department says they are an AOP. Are they?
  Not merely because they presented a common face to the customer. An association of persons requires a common enterprise managed through some degree of joint participation; mere co-operation in serving one's own business objective is not enough, even where the business interests are common. Where the members' scopes of work are separate, each manages its own deliverables, and neither costs nor risks are shared, there is no AOP.
• DIT v OHM Ltd High CourtHelps taxpayer
  I am a foreign company providing survey and data services to an offshore oil exploration block in India. Am I taxed at 10% of gross under section 44BB, or must I go under section 44DA?
  Section 44BB applies. The Delhi High Court upheld the Authority for Advance Rulings and held that where a non-resident provides services in connection with prospecting for or extraction or production of mineral oils, section 44BB governs the computation, not section 44DA. Section 44BB is the special provision and section 44DA the general one, so generalia specialibus non derogant applies. Reading section 44DA as covering everything would reduce section 44BB to a dead letter. The provisos inserted by the Finance Act 2010 in both sections are clarificatory on computation and do not change either section's sphere of operation.
• ITO (TDS) v Sashwat Energy P Ltd ITATHelps taxpayerNo later treatment found
  My deductee has returned the income and paid the tax, and I have filed Form 26A. I know the s.201(1) demand goes — but for how long does s.201(1A) interest run against me?
  To the date the resident payee furnished his return of income, not to the date you eventually pay. The Mumbai Bench stated the rule expressly: where the payer is not deemed to be an assessee in default under s.201(1) because the resident payee paid the tax, interest under s.201(1A)(i) is payable from the date on which the tax was deductible to the date of furnishing of the return of income by that resident payee. The s.201(1) demand itself was set aside subject to verification.
• ADIT (International Taxation) v Shandong Tiejun Electric Power Engineering Co. Ltd — where s.44BBB(2) is complied with, the officer cannot reject the books under s.145(3) and fall back on the 10 per cent ITATHelps taxpayerNo later treatment found
  We are a foreign company on an approved turnkey power project. We keep books, they are audited, and we recognise revenue on percentage of completion under AS-7. The Assessing Officer has rejected the books under section 145(3) and taxed 10 per cent of our billings under section 44BBB(1). Can he do that?
  The Ahmedabad Bench of the Tribunal held he could not, on these facts, and dismissed the Revenue's appeal. Section 44BBB(2) gives the assessee an option to be assessed on lower profits on two conditions only — that it keeps and maintains books and other documents as required under s.44AA(2) and that it gets its accounts audited and furnishes the s.44AB report — and where those are satisfied and a recognised method of accounting under AS-7 has been regularly followed and disclosed, the officer's action in rejecting the books under s.145(3) and assessing under s.44BBB(1) on a presumptive basis is not justified.
• In re Rotem Company and Mitsubishi Corporation Advance RulingHelps taxpayer
  We are in a consortium supplying rolling stock to Delhi Metro. Our returns are filed and a writ about the TDS rate is pending. Can we still get an advance ruling?
  Yes. The Authority held the applications maintainable and allowed them so that rulings could be pronounced. On the bar in clause (i) of the proviso to section 245R(2) it held that the mere filing of returns by the applicants would not fall within the mischief of that clause, no notice under section 143(2) having been issued to them before the date of the applications. The proceedings that were on foot - applications under section 197 for determination of the rate of deduction, an appeal against the order on them and a writ petition - concerned the rate of tax for deduction at source, and did not involve the questions the Authority was being asked to decide.
• Tekniskil (Sendirian) Berhard v CIT Advance RulingHelps taxpayerSuperseded by amendment
  We are a Malaysian company that recruits skilled workers abroad and supplies them to a Korean contractor working offshore India. We are paid outside India and we supervise nothing. Are we taxable here?
  No. The Authority ruled that Tekniskil, a Malaysian manpower company, was not taxable in India on sums received abroad and had no permanent establishment here. It supplied about a hundred skilled workers to Hyundai Heavy Industries for offshore installation work at Bombay High. It recruited them outside India, bore their mobilisation and personal costs, and handed them over; HHI directed and supervised them on its own barges. Supplying labour was a business activity, so article 7 of the India-Malaysia agreement applied, and with no fixed place at Tekniskil's disposal there was nothing for the profits to attach to. The ruling binds only Tekniskil.
• Statutory position — s.194G: commission on the sale of lottery tickets, and the rate and threshold as they now stand CBDT Circulars & InstructionsCuts both ways
  The lottery distributor deducted ten per cent from my agency commission. What is the correct rate and threshold under s.194G, and when did they change?
  Not ten per cent, unless the payment is an old one. As the section now stands the rate is two per cent and the threshold twenty thousand rupees: footnote 85 records that 'two' was substituted for 'Five' by Act No. 15 of 2024 with effect from 1 October 2024, and footnote 84 that 'twenty' was substituted for 'fifteen' by Act No. 7 of 2025 with effect from 1 April 2025, the earlier 'fifteen' itself having been substituted for 'one' by Act No. 28 of 2016 with effect from 1 June 2016. The section reaches any person paying, to a person who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize by whatever name called on such tickets.
• Statutory position — s.194K: ten per cent on income in respect of mutual fund units, the ten thousand rupee threshold from 1 April 2025, and why capital gains on units are outside it CBDT Circulars & InstructionsCuts both ways
  My mutual fund has deducted ten per cent under section 194K. Should it be deducting on the redemption proceeds and on my capital gains as well, and what is the threshold now?
  No. The section applies to income in respect of units of a specified mutual fund, or units from the Administrator of the specified undertaking or from the specified company, and the second limb of its proviso says in terms that it does not apply 'if the income is of the nature of capital gains'. The rate is ten per cent, and no deduction is made where the income credited or paid, or likely to be credited or paid, during the financial year does not exceed ten thousand rupees — a figure substituted for five thousand rupees with effect from 1 April 2025.
• Statutory position — s.194A: tax on interest other than interest on securities, with the threshold at ₹50,000 for a bank, co-operative bank or post office, ₹1,00,000 for a senior citizen and ₹10,000 in any other case — the 1961 Act position from 1 April 2025 to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My bank has deducted tax on my fixed deposit interest and I was told the limit had gone up. My father is a senior citizen and his bank deducted too. There is also a loan I took from a friend on which I pay interest, and a co-operative society that pays me interest on a deposit. Who exactly has to deduct under section 194A, on what amount, and what are the limits as they stand now?
  Section 194A requires any person who is not an individual or a Hindu undivided family, and who pays a resident interest other than interest on securities, to deduct tax at the rates in force at the time of credit or payment, whichever is earlier. An individual or HUF is drawn in only by the proviso to sub-section (1), and only if total sales, gross receipts or turnover exceeded one crore rupees in business or fifty lakh rupees in profession in the preceding financial year. Section 194A(3)(i) sets the thresholds. From 1 April 2025 they are fifty thousand rupees where the payer is a banking company, a co-operative society carrying on banking business or a post office deposit scheme, one lakh rupees where the payee is a senior citizen, and ten thousand rupees in any other case — each figure substituted by Act No. 7 of 2025, the Finance Act, 2025. Section 194A(3) also carries the exclusions: interest paid to a banking company, a financial corporation, the Life Insurance Corporation, the Unit Trust of India or an insurer under clause (iii); interest paid by a firm to its partner under clause (iv); the co-operative society exemptions in clauses (v) and (viia), which since 1 April 2020 are switched off only where both conditions in the proviso are met — the society's turnover exceeded fifty crore rupees in the preceding financial year and the interest to that payee crossed one lakh rupees for a senior citizen or fifty thousand rupees for anyone else; and the two Motor Accidents Claims Tribunal limbs in clauses (ix) and (ixa), where interest credited is never liable and interest paid is liable only above fifty thousand rupees in the financial year — a figure the Finance Act, 2025 did not move. Section 197A(1A) and (1C) let a payee stop the deduction by declaration — Form No. 15G, or Form No. 15H for a resident individual aged sixty or more, both prescribed by rule 29C. From 1 April 2026 the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025; the successor is section 393(1) of the 2025 Act, whose Table carries the same three figures.
• Statutory position — s.197: the Assessing Officer may certify a lower rate, or nil, for a listed section, but only on the payee's application and only for a period of the previous year — the 1961 Act position, for deductions up to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
  Section 197(1) lets the payee apply to the Assessing Officer for a certificate that the payer may deduct at a lower rate, or not at all. It is not open-ended: it works only for the sections named in it, and the Assessing Officer must be satisfied that “the total income of the recipient justifies” the lower rate. The list is sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195 — 194LBA was added by Act No. 8 of 2023 with effect from 1 April 2023 and 194Q by Act No. 15 of 2024 with effect from 1 October 2024. Section 197(2) then binds the payer: once a certificate is given, he deducts at the certified rate, or nothing, until the Assessing Officer cancels it. Section 197(2A) is the rule-making power, and the rules made under it are rule 28 (application in Form No. 13, filed electronically), rule 28AA (how the rate is worked out and how long the certificate lasts) and rule 28AB (a no-deduction certificate for trusts and other section 139(4C) filers). Nothing in the section or the rules confers a power to backdate a certificate, and in substance it operates forward: rule 28AA(4) sends it to the named deductor, who cannot un-deduct months already past. From 1 April 2026 this machinery is gone — the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025 and the successor is section 395 of the 2025 Act, applied for in Form No. 128 under rule 213 of the Income-tax Rules, 2026, and from the same date section 395(6) lets that application go to a prescribed income-tax authority instead of the Assessing Officer.
• Statutory position — ss.196A, 196B and 196C: three fixed-rate deduction sections for non-residents, only one of which carries a treaty proviso, and none of which is in the s.197 list CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  We are remitting income on mutual fund units to a foreign company, and separately paying on Global Depository Receipts. Do we deduct under section 195 at rates in force, and can the payee get a lower deduction certificate?
  No. Where one of these three sections applies, it and not section 195 supplies the rate, and the rate is a figure fixed in the section rather than the 'rates in force'. Section 196A covers income in respect of units of a Mutual Fund specified under clause (23D) of section 10, or from the specified company referred to in the Explanation to clause (35) of section 10, paid to a non-resident not being a company or to a foreign company, at twenty per cent; it alone carries a proviso letting the rate fall to the treaty rate where an agreement under section 90(1) or section 90A(1) applies and the payee has furnished the certificate referred to in section 90(4) or section 90A(4). Section 196B covers income in respect of units referred to in section 115AB, and long-term capital gains on their transfer, payable to an Offshore Fund. Section 196C covers interest or dividends on bonds or Global Depository Receipts referred to in section 115AC, and long-term capital gains on their transfer, payable to a non-resident. Sections 196B and 196C each now carry a three-limb rate: ten per cent on the income, ten per cent on long-term capital gains where the transfer takes place before 23 July 2024, and twelve and one-half per cent where it takes place on or after that date. None of the three sections is in the list in section 197(1).
• Statutory position — s.194N: the two and five per cent structure, the one crore, three crore and twenty lakh thresholds, and who is outside the section altogether CBDT Circulars & InstructionsCuts both ways
  My bank has deducted under section 194N on my cash withdrawals. What are the thresholds and rates as the section now stands, and is there anything that takes me out of it?
  Section 194N obliges a banking company, a co-operative society carrying on the business of banking, or a post office to deduct two per cent from any sum paid in cash exceeding one crore rupees during the previous year, from one or more accounts maintained by the recipient with it, computed on the aggregate of amounts paid in the year. Where the recipient is a co-operative society, a proviso substitutes 'three crore rupees' for 'one crore rupees' with effect from 1 April 2023; and where the recipient has not filed returns for all of the three assessment years whose section 139(1) time limit has expired immediately preceding the previous year, the threshold falls to twenty lakh rupees with deduction at two per cent between twenty lakh and one crore and five per cent above one crore.
• Statutory position — section 206AA, sub-section (7) and rule 37BC: the twenty per cent rate, the five per cent provisos, and the non-resident's way out CBDT Circulars & InstructionsCuts both ways
  My non-resident payee has no PAN. Must I deduct at twenty per cent, and is there any prescribed alternative?
  Section 206AA(1) requires a deductee to furnish his permanent account number, failing which tax is deducted at the higher of the rate specified in the relevant provision, the rates in force, or twenty per cent — but two provisos substitute five per cent for twenty where the deduction is under section 194-O or section 194Q. Sub-section (7) disapplies the section altogether to a non-resident not being a company and to a foreign company in respect of interest on long-term bonds under section 194LC and any other payment subject to prescribed conditions, and rule 37BC prescribes those conditions. Under rule 37BC(1) the section does not apply to interest, royalty, fees for technical services, dividend and payments on transfer of any capital asset if the deductee furnishes the four items in sub-rule (2) to the deductor.
• Statutory position — s.195: tax is deducted only on a sum “chargeable under the provisions of this Act”, and Explanation 2 fixes who owes the duty, not what is taxable CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  In March 2026 I remitted a fee to a company outside India without deducting anything, because I did not think any part of it was taxable here. The Assessing Officer now says section 195 obliged me to deduct on the whole remittance, or at least to apply to him before paying. Does section 195 say that — and since the new Act has come in, which Act governs my payment at all?
  Which Act governs is settled by one date: on the CBDT's transition FAQ, where the earlier of credit or payment falls on or before 31 March 2026 the Income-tax Act, 1961 applies, and where it falls on or after 1 April 2026 the Income-tax Act, 2025 applies instead — there, the deduction duty sits in section 393(2), Table, Serial No. 17. So a March 2026 remittance is a section 195 question. Section 195(1) does not tax a remittance; it attaches a deduction duty to “any interest … or any other sum chargeable under the provisions of this Act” paid to a non-resident or a foreign company, at the time of credit or of payment, whichever is earlier. Those five words are the gateway, and in GE India Technology Centre the Supreme Court held on 9 September 2010 that they cannot be read out of the sub-section: a payer who is fairly certain that no part of the sum is chargeable in India may make that determination himself and is not obliged to apply under section 195(2) first. Section 195(2) is the payer's application where a composite payment is partly chargeable; section 197 is a different route, taken by the recipient. Sub-section (6) requires information about every sum, whether or not chargeable, in the form prescribed by rule 37BB — which is why the bank asks for a 15CA even where nothing is deductible.
• Statutory position — s.10(50) of the Income-tax Act: the exemption for income already subjected to equalisation levy, the royalty and fees-for-technical-services carve-out, and the two dates that close it CBDT Circulars & InstructionsCuts both ways
  My client paid equalisation levy on the same receipts the Assessing Officer is now taxing as income. Is there an exemption, and has the department any answer to it?
  There is, and it is the only place in the Income-tax Act where the equalisation levy — which is charged by Chapter VIII of the Finance Act, 2016 and not by the Income-tax Act — meets income-tax. Section 10(50) excludes from total income any income arising from (i) a specified service provided on or after the date on which Chapter VIII of the Finance Act, 2016 came into force, or (ii) e-commerce supply or services made or provided or facilitated on or after 1 April 2020 BUT BEFORE 1 AUGUST 2024, and chargeable to equalisation levy under that Chapter. Two limits close it. Explanation 1 says the income referred to in the clause 'shall not include and shall be deemed never to have been included' any income chargeable to tax as royalty or fees for technical services in India under the Act read with a section 90 or 90A agreement. And the proviso says the clause does not apply to any income of the previous year relevant to the assessment year beginning on or after 1 April 2026 — that is, from AY 2026-27 onwards.
• Concentrix Services Netherlands B.V. and Optum Global Solutions International B.V. v ITO (TDS) — OVERRULED High CourtHelps taxpayerOverruled
  My Dutch parent has a s.197 certificate application pending and wants dividend withholding at 5 per cent under the most favoured nation clause in the Protocol. There is a Delhi High Court judgment in its favour. Can I still rely on it?
  No. This Delhi High Court judgment held that the Protocol forms an integral part of the India-Netherlands Convention so that 'no separate notification is required' for the most favoured nation clause to operate, and directed withholding at 5 per cent by importing the rate from India's later treaties with Slovenia, Lithuania and Colombia. That reasoning was reversed by the Supreme Court in Assessing Officer Circle (International Taxation) v. Nestle SA on 19 October 2023, which held that a notification under s.90(1) is a necessary and mandatory condition before a court, authority or tribunal can give effect to a Protocol that alters the existing provisions of law. The entry is carried so that the reader can identify the authority and stop relying on it.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.