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CMA Intermediate · Direct and Indirect Taxation · Tax Deducted at Source and Tax Collected at Source

Under the Income-tax Act, 2025, a payee whose total income justifies a lower rate of tax deduction on a sum payable to him applies to the Assessing Officer. If the Assessing Officer is satisfied and issues a certificate under section 395, what must the payer do?

The payer must deduct tax at the rate stated in the certificate, or deduct nothing if the certificate so provides, for as long as the certificate is valid. The certificate binds the payer, so normal-rate deduction or a limit to one payment is wrong.

  1. ADeduct tax at the rate specified in the certificate, or no tax if so stated, until its validityCorrect
  2. BDeduct tax at the normal rate and let the payee claim a refund later
  3. CDeduct tax at the certificate rate only for the first payment made
  4. DDeduct tax at the normal rate if the payer disagrees with the certificate

Explanation

Section 395(1)(c) requires the person responsible for paying the income or sum to deduct tax at the rate specified in the certificate, or deduct no tax, till its validity. The refund route ignores the certificate, and nothing limits it to the first payment or lets the payer override it.

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