Lower & Nil TDS Certificates Under Section 395 / Form 128
Most tax advice about excess TDS begins after the damage is done: “file your return, claim your refund.” It’s correct, and it’s also the reason so many businesses and NRIs treat a 12-to-18-month freeze on their own capital as normal.
It isn’t normal, and it isn’t necessary. There is a quieter, far more valuable move — and it happens before the income ever reaches you.
From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act. The lower/nil TDS certificate you may know as Section 197 is now Section 395; the form you know as Form 13 is now Form 128, filed on the TRACES portal under the Income-tax Rules, 2026. The mechanism is the same — only the name, number and form have changed. Most people, and many professionals, are still using the old terms. That gap is exactly why so few taxpayers actually use this.
The problem, in one line
TDS is deducted at a flat statutory rate that assumes you are fully profitable and paying full tax. For a great many people, that assumption is wrong — a startup running at a loss, a business carrying forward losses or under a concessional regime, an exporter on thin margins. And, most starkly, an NRI selling property, where the buyer must deduct TDS on the entire sale value, not on the actual capital gain.
When the deduction rate is higher than your real liability, the difference doesn’t vanish. It becomes a refund — your own working capital, locked with the department, returned late. And the interest paid on it, if any, is delayed, often partial, and taxable.
What a Section 395 certificate is
Section 395 lets you apply to the Assessing Officer for a certificate authorising your payers to deduct TDS at a lower rate — or nil. You apply in Form 128 on the TRACES portal. Once issued, you hand the certificate to whoever pays you, and they deduct against your real liability instead of the flat rate.
It is not a loophole or an aggressive scheme. It is an explicit right written into the statute — created precisely so that deduction can match reality.
Who it’s for
The situations that almost always justify it:
How it works — five steps
- Assess your real tax liability for the year.
- File Form 128 on TRACES with the supporting documents.
- The Assessing Officer reviews your estimate.
- The certificate is issued, specifying the lower or nil rate.
- You give it to your deductor, who applies it to your payments.
The certificate must be arranged before the income arrives. You cannot retrofit it after the TDS is deducted — at that point, your only route is the refund queue. This is the whole reason the instrument is so underused: it rewards planning and punishes drift.
NRIs selling property: the detail that catches people out
When an NRI sells property, the buyer deducts TDS under Section 393 (the old Section 195) on the gross sale consideration — not on the gain. A lower-deduction certificate under Section 395 (Form 128), obtained before the sale deed, limits that deduction to tax on the actual capital gain. Two timing points matter right now: apply 30–60 days ahead, and note that for NRI property transactions the TAN-based mechanism remains in force until 30 September 2026, with the PAN-based route applying only from 1 October 2026.
An NRI selling a Chennai apartment for ₹2.4 crore
Without a certificate, the buyer deducts TDS on the whole sale value. With one obtained before the sale deed, deduction is limited to tax on the actual gain.
Figures illustrative, at an effective rate of roughly 15%. Every case turns on its own facts, the exact rate (including surcharge and cess) and the cost of acquisition.
Find your number
Most people never learn how much of their cash is frozen right now, because no one has ever put the question to them. We built a free 2-minute Trapped-Cash Calculator that shows you the figure — and whether a Section 395 certificate is worth pursuing in your case.
Stop financing a refund you never needed
See how much of your cash is frozen — then whether Form 128 can free it.
Try the Trapped-Cash Calculator →Or book a free Form 128 eligibility assessment →
Disclaimer: This article is general information, not professional advice. References are to Section 395 / Form 128 of the Income-tax Act, 2025 and the Income-tax Rules, 2026 (formerly Section 197 / Form 13 of the Income-tax Act, 1961); TDS on payments to non-residents is under Section 393 (formerly Section 195). Eligibility, procedure, the applicable rate and outcomes depend on individual facts and the law in force at the time. Please seek specific advice before acting.
