Suppose you run a small marketing agency and receive payments from several clients during the year. As required under the rules, each client deducts 10% TDS before making the payment.
By the end of the year, your agency receives ₹50 lakh from clients. Since each client deducts 10% TDS, nearly ₹5 lakh is already paid as tax on your behalf.
However, after accounting for business expenses, your actual tax liability may only be ₹2 lakh. The remaining ₹3 lakh stays with the government until you file your return and claim a refund.
That’s where a lower or nil TDS certificate becomes useful.
What is Form 128 and why is it used?
Form 128 is an application filed with the Income Tax Department requesting that TDS on your income be deducted at a lower rate than the standard rate, or not deducted at all.
This means that if your tax liability for the year is significantly lower than the tax that would normally be deducted through TDS, you can apply in advance for a certificate telling the payer to deduct TDS at a reduced rate.
The payer could be your employer, a tenant paying rent, a buyer purchasing property, a bank paying interest, or a client paying professional fees
Once the certificate is issued, the deductor must apply the TDS rate specified in the certificate instead of the standard rate. Form 128 must be filed on the Income Tax e-Filing portal.
Who should apply?
Form 128 is relevant for taxpayers who expect their tax liability to be lower than the applicable TDS or TCS rate. It is commonly applied by:
1. Freelancers and professionals: Clients deduct 10% TDS under Section 393(1), but after accounting for expenses and deductions, their final tax liability may be much lower.
2. Small businesses and MSMEs: They may also experience cash flow pressure due to high TDS on contract payments, especially when margins are tight.
3. Senior citizens with interest income: Interest from fixed deposits may attract 10% TDS, even though their tax liability may fall within lower tax slabs after deductions.
4. NRIs selling property in India: Buyers are required to deduct 20%+ TDS on the sale value, which can be significantly higher than the capital gains tax liability.
5. Startups in early years: Startups may incur initial losses, but still have TDS deducted on payments they receive.
6. Individuals receiving large one-time payments such as profit from property sales, insurance commissions or professional consulting payments, where the standard TDS rate may far exceed the final tax liability.
Your applications will be verified using data from your AIS (Annual Information Statement), TIS (Taxpayer Information Summary) and previously filed income tax returns.
What type of incomes are covered?
Form 128 applies to most types of income that are subject to TDS. These incomes are defined in two sections of the IT Act, 2025.
Section 392 covers salary payments, including salary received from private employers, state governments, and the central government.
Section 393 covers most other types of income, including interest from fixed deposits and savings accounts, dividends, rent on land or buildings, professional or technical fees, commission and brokerage, insurance commission, and payments made to non-residents.
However, two types of income are not covered: lottery or gambling winnings and EPF withdrawals. You cannot get a lower or nil certificate for these, regardless of your tax position.
What’s inside Form 128?
Form 128 is divided into six parts (Part A to Part F) along with three annexures that capture different details required to evaluate the application.
Part A: This section captures the basic details of the person applying for the certificate. It includes the tax year for which the certificate is requested, the applicant’s name, address, contact details, PAN, and residential status.
These details help the ITD identify the applicant and verify their records.
Part B: This section asks you about your applicant type and the type of certificate requested:
- Lower or nil deduction TDS certificate issued to a known payer
- Certificate issued even when the payer is not yet known
- Certificate allowing TCS to be collected at a lower rate.
The details of these transactions are provided through the annexures attached to the form.
Part C: This covers details of the applicant’s tax liability and filing history. These details help the ITD review the applicant’s tax compliance before issuing the certificate.
Part D: This section applies only to registered non-profit organisations and specified entities.
Part E: This declaration is for everyone else who do not fall under the NPO or specified entity category.
Both Part D and Part E declarations confirm that you’ve filed returns for the past four years and that the income mentioned in this application is not clubbed with someone else’s income.
Part F: This is the verification section. The person submitting the application must provide their full name, PAN, and designation, and confirm that the information provided in the form is true and complete.
The Annexures
Form 128 requires additional transaction details to be submitted through three annexures.
Annexure I is used when the applicant knows the payer. It contains details of the person responsible for paying the income or deducting tax.
Annexure II applies when the applicant does not yet know the payer but still wishes to receive income with tax deducted at a lower rate. In such cases, the applicant must state the reason for requesting the certificate.
Annexure III is used for TCS-related requests and includes details such as the TAN of the seller, lessor, or licensor, and the lower collection rate being requested.
You can also refer to the official draft of Form 128 we’ve attached below.
Draft Form 128.pdf (205.7 KB)
How long is the certificate valid?
Once you apply, it generally takes about 2 to 4 weeks for the ITD to process the request and issue the certificate.
The certificate remains valid from the date it is issued until 31 March of that tax year.
However, the certificate must be obtained before the payment is made. If TDS has already been deducted at the standard rate, the certificate cannot be applied retroactively. Any excess tax will need to be claimed as a refund when filing the ITR.
If the situation continues in the following year, you will need to apply again, since the certificate does not automatically carry forward.