Form 13 Is Now Form 128: Lower or Nil TDS Certificate Guide

What Is a Lower or Nil TDS Certificate?

A lower or nil TDS certificate allows the deductor, the person responsible for deducting TDS, to deduct tax at a rate lower than the normally applicable rate or at a nil rate if approved by the Assessing Officer.

For example, suppose a ₹10 lakh payment would normally have TDS deducted at 10%. This would mean ₹1 lakh is withheld. If a valid certificate approves a 2% rate for that payment, ₹20,000 would be withheld instead.

A lower deduction therefore helps reduce excess withholding during the year. It does not reduce the applicant's final tax liability or make the underlying income tax-free.

Note: The example is only illustrative, as the actual TDS rate depends on the type of payment and the applicable tax provisions.

Form 128: What Changed in 2026?

The Income-tax Act, 2025 came into force on 1 April 2026. Under the new framework, the application earlier made in Form 13 is now made in Form 128. The Income-tax Rules, 2026 were notified through Notification No. 22/2026, G.S.R. 198(E), dated 20 March 2026. The main changes are:

There is also a transition rule for existing certificates. A certificate issued under old Section 197 remains valid for payments or credits made on or after 1 April 2026 if it was issued for lower or nil deduction on projected receivables for Tax Year 2026-27. Such a certificate does not become invalid merely because the new Act has taken effect.

Who Can Apply for Form 128?

An applicant can use Form 128 when TDS would normally apply, but their estimated total income supports a deduction at a lower rate or no deduction.Section 395(1) continues the lower or nil deduction mechanism that earlier existed under Section 197.

Depending on the facts, Form 128 may be relevant to businesses, professionals, individuals, non-residents, registered non-profit organizations and other eligible applicants.

Typical situations may include a business operating on low taxable margins , an applicant with eligible brought-forward losses, a professional whose expected tax liability is lower than the TDS on receipts, or a non-resident whose expected Indian tax liability is lower than the withholding that would otherwise apply.

Eligibility depends on the applicant's income, tax position and the nature of the payment. A lower or nil certificate is not granted simply because normal TDS affects cash flow.

How Does the Assessing Officer Decide the Rate?

Rule 213 sets out the factors the Assessing Officer may consider before issuing a lower or nil deduction certificate. The rule forms part of the Income-tax Rules, 2026 notified through Notification No. 22/2026.

Registered non-profit organisations and certain specified entities may also have to meet additional conditions relating to their approval status and earlier income-tax return filing.

The AO uses these factors to decide whether the applicant's estimated tax position supports the lower or nil rate requested.

When Might the Requested Rate Not Be Approved?

Filing Form 128 does not guarantee that the rate requested by the applicant will be approved. The AO must first determine whether the applicant's estimated income and tax position justify a lower or nil rate.

The requested rate may not be accepted if the income and tax estimate does not support it, existing tax liabilities affect the calculation, or conditions applicable to the applicant's category are not met.

For registered non-profit organisations and certain specified entities, approval status and earlier return-filing conditions can also affect eligibility.

Applicants should therefore make sure that the figures in Form 128 are supported by their tax records, financial information and other relevant documents

How to Apply for Form 128

CBDT's 2026 guidance states that the Form 128 application process is available through TRACES or the e-Filing portal.

Application Steps

The process generally involves:

1. Open Form 128 for the relevant tax year.
2. Enter the applicant's PAN, contact and other required details.
3. Provide details of the income or payments for which lower or nil TDS is requested .
4. Add deductor details where required.
5. Enter the estimated income and tax details requested in the form.
6. Complete the applicable annexures and attach supporting information.
7. Verify and submit the application electronically.
8. Track the application and respond to any clarification sought by the tax authority.

If the application is accepted, the Assessing Officer issues a certificate specifying the approved rate and its period and scope of validity.

Information and Records to Keep Ready

The supporting records will depend on the applicant and the type of income involved. Commonly relevant information may include:

Not every document will be required in every case. The supporting information should match the applicant's category and the facts stated in Form 128.

If There Are More Than 100 Deductors

Rule 213 provides a separate mechanism where the number of persons likely to deduct tax exceeds 100 and their details are not available when the application is filed.

In that situation, a certificate may be issued in the applicant's name. The applicant can then generate the appropriate certificate through the Income Tax Department's portal and provide it to the relevant deductor.

How Does the Certificate Work After Approval?

A lower deduction certificate should not be treated as permission to apply one reduced TDS rate to every transaction. Rule 213 limits the certificate by its stated scope.

If expected receipts are likely to exceed the amount covered by the certificate, the applicant should review the position before the approved amount is exhausted. Payments beyond the amount covered by the existing certificate are not eligible for its lower rate unless they are covered by another valid certificate.

What Should the Deductor Check?

The deductor should verify that the current payment falls within the scope of the valid certificate before using the reduced rate.

The certificate details must also be reported correctly in the applicable TDS statement. Under the Income-tax Rules, 2026, Form 140 replaces Form 26Q for quarterly non-salary TDS statements, while Form 144 replaces Form 27Q for quarterly statements covering non-salary payments to non-residents.

Businesses dealing with different TDS rates across vendors need to keep lower-rate cases separate from normal TDS transactions. BUSY accounting software allows businesses to create a custom TDS category with a lower rate and review party-wise TDS deduction details, helping teams keep these transactions organised.

Form 128 vs. Form 121 vs. Form 129

Form 128 is sometimes confused with other forms dealing with non-deduction or non-resident payments . They serve different purposes.

Form 121 replaces the earlier Forms 15G and 15H , while Form 129 replaces Form 15E. The correct route depends on the type of payment, the person making the application and the recipient's tax status.

Form 128 for NRIs Selling Property in India

The TDS process is different when the property seller is a non-resident . The PAN-based property TDS process currently available for resident sellers should not be used for a non-resident seller.

As of August 2026, the Income Tax Department states that Form 141 applies only where the deductee is resident. For non-salary payments to a non-resident, Form 144 is the applicable quarterly TDS statement, and the current filing process requires the deductor to have a valid Tax Deduction and Collection Account Number (TAN).

This requirement is scheduled to change from 1 October 2026. Under the 2026 amendment, a resident individual or Hindu Undivided Family (HUF) buying immovable property from a non-resident will no longer be required to obtain TAN for this transaction.

An NRI seller may consider applying for a lower deduction certificate where the TDS that would otherwise apply is higher than the tax justified by the seller's actual tax position.

The final tax depends on factors such as the cost and date of acquisition, whether the gain is short-term or long-term, available capital gains exemptions and the seller's overall tax position. The applicable TDS should therefore be determined based on the facts of the transaction rather than using the resident-seller property TDS rate.

Conclusion

Form 128 can help prevent excess TDS where the applicant's estimated total income supports a lower or nil rate.

If you expect a payment on which a lower deduction is required, apply early enough for the certificate to be issued before that payment or credit. Rule 213 does not prescribe one common processing period for all applications, so applicants should not rely on a fixed turnaround time.