Businesses and taxpayers seeking a lower or nil TDS certificate for Tax Year 2026-27 should now use Form 128 under the Income-tax Act, 2025.

The Income Tax Department has clarified that section 395(1) of the new Act corresponds to the earlier section 197 mechanism. The substantive concept remains: where the estimated total income justifies deduction at a lower rate or nil rate, the payee may apply to the Assessing Officer for an appropriate certificate.

There is also an important transition clarification. A lower/nil deduction certificate already issued under section 197 of the Income-tax Act, 1961 can continue to apply to payments or credits made after 1 April 2026, provided that the certificate was issued for the projected receivables of Tax Year 2026-27.

Business impact

This can be particularly relevant for businesses with large gross receipts but comparatively lower taxable margins, where normal withholding rates may create recurring tax-credit accumulation and working-capital pressure.

Finance teams should therefore assess expected income, withholding streams and existing certificates early in the tax year rather than viewing lower-TDS applications as a year-end compliance exercise.

Existing certificates should also be checked carefully before assuming that the transition to the new Act automatically makes them invalid.

Mardia Global | Tax & Accounting Insights for Businesses in India