Form 128 Income Tax – Lower & Nil TDS Certificate Guide
Most people only think about TDS after it's already been cut from their payment. By then, the money is gone — sitting with the government, waiting to be refunded months later. Form 128 income tax lets you stop that from happening in the first place.
Under the Income Tax Act 2025, Form 128 is the official route to request a lower or nil TDS deduction certificate — legally, proactively, before your payer cuts a single rupee. Here's exactly how it works.
Form 128 is an application form that allows a taxpayer to request the Income Tax Department to issue a certificate directing their payer — the deductor or collector — to deduct or collect tax at a lower rate, or not deduct it at all.
It is governed by Section 395 of the Income Tax Act, 2025, and Rule 213 of the Income Tax Rules, 2026. The application is processed by your Assessing Officer through the TRACES portal. Once issued, the certificate is legally binding on your payer — they must honour it.
Form 128 came into effect on 1 April 2026, replacing Form 13 under the old Income Tax Act 1961, which has now been repealed.
The Income Tax Act 1961 is no longer in force. With the 2025 Act replacing it entirely, every form and compliance requirement had to be restructured. Form 13 went with the old law. Form 128 is what applies now.
Here's a side-by-side comparison:
Feature
Form 13 (Old)
Form 128 (New)
Governing Act
Income Tax Act, 1961
Income Tax Act, 2025
Governing Section
Section 197 / 206C(9)
Section 395(1) / 395(3)
Applicable Rules
Rules 28, 28AA, 28AB, etc.
Rule 213, IT Rules 2026
Valid Until / From
Up to 31 March 2026
From 1 April 2026
Applicant Categories
Not structured
Four defined categories
Form Technology
Basic digital form
Auto-fill, real-time validation
Terminology Used
Assessment Year
Tax Year
The structural logic is the same — the legal wrapper is completely new.
Anyone whose actual tax liability is lower than the TDS or TCS being deducted on their income is eligible. It does not matter whether you are an individual, a company, an HUF, or a firm. Business income, capital gains, interest, rent, professional fees — any income type qualifies.
Form 128 places all applicants into one of four official categories (as per Form 128 structure):
The category you select determines which parts of the form and which annexures apply to your filing. It is not just an administrative label — pick the wrong one and your application can be sent back.
No. Filing Form 128 is completely voluntary.
If you skip it, your payer simply deducts TDS at the standard rate. You can then claim the excess back as a refund through your ITR. The money comes back — but slowly, and only after your return is processed.
That's the real reason to file Form 128. It is a cash flow decision, not a compliance obligation. Your money stays with you through the Tax Year instead of being locked up as advance tax credit with the department.
For businesses with large TDS deductions on regular income — interest, professional fees, contract payments — the difference in available working capital can be significant.
Timing matters here. The certificate must be in place before the transaction or payment occurs. If TDS has already been deducted on a specific payment, that transaction cannot be covered by a new Form 128 application. The window is closed for that one.
For regular, recurring income — salary, interest, rent, professional fees — file at the start of the Tax Year. April is the right time. Don't wait until July and then wonder why half the year's TDS is already gone.
For one-time or irregular transactions — a property sale, a large contract payment — file Form 128 before the transaction is finalised.
There is no cap on the number of times you can file Form 128 in a Tax Year. Multiple applications are allowed as your income or transactions change. Each application is assessed independently.
The certificate remains valid for the period specified in it — typically the current Tax Year — unless the Assessing Officer modifies or withdraws it earlier.
Form 128 is a multi-part structured form. Each section has a clear, specific purpose.
Part A — Applicant Details Your name, address, PAN, entity type, residential status, and contact details. Basic identity — gets the AO oriented to who is filing.
Part B — Nature of Application You declare your applicant category here and specify the income type or transaction for which you are seeking the lower or nil certificate. This section sets the scope of your application.
Part C — Tax Liability and Income Details This is where the financial justification lives. You declare your advance tax payments, existing TDS/TCS credits, and details of each income source in question. The AO reviews this section most carefully — it needs to be accurate and complete.
Part D & E — Declarations Part D is for Registered Non-Profits and Specified Entities. Part E applies to all other applicants — individuals, businesses, NRIs. Both are declaration sections confirming the accuracy of what you have submitted.
Part F — Verification The final section. You verify the application and digitally sign it before submission. Without this, the form cannot be filed.
Annexure-I - For TDS applications where the payer's details — name, TAN, payment amount — are known at the time of filing. This is the standard annexure for most applicants.
Annexure-II - For situations where the number of payers is likely to exceed 100 and their individual details are not available yet. The department issues a master certificate in the applicant's name. The applicant then generates Child Certificates for each individual deductor.
Annexure-III - For TCS (Tax Collected at Source) applications, where you want the collector to collect tax at a lower rate or not at all.
Get these ready before you start filling the form:
Document
Why It's Needed
PAN of the applicant
Mandatory — no PAN, no submission
Estimated income and tax liability computation
Core justification for the lower rate request
ITRs, Audit Reports, and financials — last 4 years
Historical data the AO uses to assess your claim
Advance tax paid and TDS/TCS credit details
Shows existing tax payments supporting lower liability
Payer details including TAN (Annexure I & III)
Identifies who will deduct at the approved lower rate
Missing or incomplete documents are the most common reason applications get delayed or rejected. Submit everything together the first time.
Form 128 is filed exclusively online, only through the TRACES portal at www.tdscpc.gov.in. It cannot be submitted on the income tax e-filing portal (incometax.gov.in) and there is no offline option at all.
Step 1 — Log in to TRACES Go to www.tdscpc.gov.in and log in as a Taxpayer using your PAN and TRACES credentials.
Step 2 — Navigate to Form 128 From the dashboard: e-File and View → File Forms → Form No. 128
Step 3 — Fill the Form Select your applicant category, enter income details, payer information, and tax liability particulars. The smart form auto-populates several fields from your TRACES profile — review them carefully rather than assuming they are correct.
Step 4 — Upload Documents Upload your income computation, ITRs, financial statements, and supporting documents in the prescribed format. File size and format requirements are specified on the portal.
Step 5 — E-Verify and Submit Verify using a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC) — Aadhaar OTP or net banking both work for EVC.
Step 6 — Get Your ARN After successful submission, an Acknowledgement Receipt Number is generated. Save it — this confirms your application is on record.
Step 7 — AO Processes the Application Your Assessing Officer, or the automated system, reviews the application. You can track the status on TRACES using your ARN.
Step 8 — Download the Certificate Once approved, the lower or nil deduction certificate is available digitally on TRACES. Download it and share it with your payer. From that point, they are legally required to deduct at the rate specified — not the standard rate.
When Annexure-II applies — meaning you have more than 100 payers and their details are not available at filing time — the department issues one master certificate in your name.
From this master certificate, you generate Child Certificates, one per deductor. Each child certificate specifies the exact TDS rate applicable to that particular payer. It is a practical system designed for taxpayers with a high volume of deductors — bond investors, mutual fund income recipients, or large professional service providers, for instance.
Property transactions are one of the most frequent use cases for Form 128 lower TDS certificate. When a property is sold in India, the buyer is required to deduct TDS on the sale amount before paying the seller.
If you are the seller and your actual tax liability on the gain is lower than the standard TDS rate, you can apply for a Form 128 certificate to reduce the buyer's deduction obligation.
A lot of taxpayers apply for Form 128 and then forget to actually share the certificate with their payer. The certificate sitting on TRACES does nothing on its own. You have to hand it to the deductor — and ideally get written acknowledgement that they have received it. If TDS is still deducted at the standard rate after the certificate is issued, the payer is in default — but recovering that money still takes time and follow-up.
Do the last step. Share the certificate.
Q: What is Form 128 in income tax and what is it used for?
A: Form 128 is an application under the Income Tax Act 2025 that allows taxpayers to request the department to issue a certificate authorising their payer to deduct or collect tax at a lower or nil rate. It replaces the old Form 13 under the Income Tax Act 1961 and is governed by Section 395 and Rule 213 of the IT Rules 2026. The certificate is processed through the TRACES portal and is legally binding on the payer once issued.
Q: Who is eligible to file Form 128 for lower TDS? A: Any taxpayer — individual, HUF, company, firm, or NRI — whose actual tax liability is lower than the TDS or TCS being deducted on their income is eligible. Form 128 classifies applicants into four categories: Registered Non-Profit Organisations, Specified Entities referred to in Section 263(9)(c), persons carrying on business or profession, and others including individuals and NRIs.
Q: What is the difference between Form 128 and the old Form 13? A: Form 128 replaces Form 13 under the new Income Tax Act 2025, effective from 1 April 2026. While Form 13 was governed by Section 197 of the IT Act 1961, Form 128 falls under Section 395 and Rule 213 of the IT Rules 2026. The new form also introduces smart features like auto-fill and real-time validation, and it formally classifies applicants into four defined categories — something Form 13 did not do.
Q: Where do I file Form 128 — income tax portal or TRACES? A: Form 128 must be filed exclusively on the TRACES portal at www.tdscpc.gov.in. It cannot be filed on the income tax e-filing portal (incometax.gov.in), and there is no offline submission option. Log in as a Taxpayer on TRACES and navigate to e-File and View → File Forms → Form No. 128.
Q: Can an NRI file Form 128 for lower TDS deduction in India? A: Yes, NRIs are eligible to file Form 128 under the Income Tax Act 2025. They fall under the "Others" applicant category. For property sale transactions specifically, buyers who are purchasing property from an NRI can also apply for a lower deduction certificate directly on the Income Tax Portal using the PAN-based facility — this is a separate route from the TRACES filing.
Q: What happens if TDS is deducted before my Form 128 certificate is issued? A: If TDS has already been deducted on a specific transaction before the certificate is issued, that transaction cannot be covered retroactively by the Form 128 application. The excess TDS deducted can be claimed as a refund when you file your ITR. Going forward, the certificate applies to all future transactions occurring after the certificate date.
Q: How many times can Form 128 be filed in a Tax Year? A: There is no statutory limit on the number of Form 128 applications in a single Tax Year. You can file multiple applications as your income sources or transaction volumes change through the year. Each application is assessed independently by the Assessing Officer.
Q: How long is the Form 128 lower TDS certificate valid? A: The validity period is specified within the certificate itself — generally covering the current Tax Year. The Assessing Officer can modify or withdraw the certificate before its expiry if circumstances change. For transaction-specific applications, the certificate is typically valid only for the duration or transaction period mentioned in the certificate.
Q: What documents are required to file Form 128 on TRACES? A: You need your PAN, a computation of estimated total income and tax liability for the Tax Year, ITRs and financial statements for the last four years, details of advance tax paid and TDS/TCS credits available, and payer details including TAN for Annexure I and III applications. Incomplete documentation is the most common reason for application delays or rejection.
Q: What is a Child Certificate under Form 128 and when is it needed? A: A Child Certificate is generated from a master certificate issued under Annexure-II of Form 128. This applies when you have more than 100 payers and their individual details are not available at the time of filing. The department issues one master certificate in your name, and you then generate separate Child Certificates for each individual deductor, specifying the exact TDS rate applicable to that payer.
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