Lower Withholding Tax Certificates

In today’s interconnected and globalised business environment, cross-border transactions are no longer limited to large multinational corporations. Businesses of all sizes — from early-stage startups and growing SMEs to established conglomerates — increasingly engage with overseas vendors, consultants, technology providers, licensors, investors, and group entities. Digitalisation, remote working models, cloud-based services, and international outsourcing have further accelerated this trend, making global transactions an everyday operational reality. 

While this international integration creates access to global talent, innovation, and capital, it also introduces significant tax and regulatory complexities. One of the most common and impactful challenges faced by businesses in cross-border and even domestic transactions is withholding tax. 

Withholding tax — referred to as Tax Deducted at Source (TDS) in India — is a mechanism under which tax is deducted by the payer at the time of making a payment and deposited with the government on behalf of the recipient. This system plays a vital role in ensuring tax compliance and early revenue collection for tax authorities. However, when withholding tax is applied mechanically at standard statutory rates without factoring in the taxpayer’s actual tax liability, exemptions, losses, or treaty benefits, it often results in excess tax deductions. 

Excess withholding creates a range of business challenges. Funds get locked with tax authorities for extended periods, refund processes become time-consuming and uncertain, and working capital cycles are disrupted. For businesses operating on tight margins, high transaction volumes, or frequent cross-border payments, this can materially affect profitability, liquidity, and operational flexibility. 

This is where Lower Withholding Tax Certificates emerge as a critical financial and compliance solution. 

At Helios Global, we specialise in assisting businesses, professionals, and multinational entities in securing Lower Withholding Tax Certificates — official approvals issued by tax authorities that permit withholding at reduced or even nil rates where justified by law. Our approach goes beyond procedural filing. We focus on strategic tax optimisation, regulatory alignment, and long-term liquidity enhancement, enabling organisations to deploy capital efficiently rather than waiting for refunds locked in tax systems. 

Income Streams Commonly Subject to Withholding Tax 

In the Indian context, withholding tax applies to, among others: 

• Salaries paid to employees 

• Professional and consultancy fees 

• Fees for technical services 

• Interest income (bank interest, inter-corporate deposits, loans) 

• Dividends 

• Rent and lease payments for land, buildings, machinery, or equipment 

• Royalty payments for intellectual property, software, trademarks, and know-how 

• Payments to non-residents for services rendered or income sourced in India 

The responsibility to deduct tax lies squarely with the payer, and failure to comply can result in interest, penalties, and disallowance of expenses. 

A Lower Withholding Tax Certificate is a formal authorisation issued by the tax authorities permitting deduction of tax at a rate lower than the standard statutory rate — or at nil — for specified income streams. 

In India, such certificates are commonly issued under Section 197 of the Income Tax Act, 1961 and are referred to as Section 197 Certificates or Lower Deduction Certificates (LDCs). 

Purpose and Legal Basis 

The purpose of a lower withholding certificate is to ensure that tax deduction at source aligns more closely with the taxpayer’s estimated actual tax liability for the relevant financial year. 

The tax authority issues the certificate after being satisfied that: 

• The applicant’s projected income 

• After considering deductions, exemptions, losses, and treaty benefits 

• Will result in a tax liability lower than what would otherwise be deducted under standard TDS provisions 

How the Certificate Operates 

Once the certificate is issued: 

• The taxpayer shares the certificate with the payer(s) 

• The payer deducts tax strictly at the rate specified in the certificate 

• Excess withholding is avoided 

• Dependency on refunds is significantly reduced 

Certificates are typically issued for a specific period — often up to the end of the relevant financial year — and may be limited to specific payers, income types, or transaction values. 

Eligibility for a Lower Withholding Tax Certificate is not automatic. Each application is evaluated individually based on facts, financial projections, and compliance history.

1.Nature of Income and Estimated Tax Liability

Applicants must demonstrate that: 

• Their total estimated tax liability for the year 

• After accounting for eligible deductions, exemptions, losses, and credits 

• Is lower than the tax that would be deducted at standard rates 

This requires detailed income forecasting and credible financial data.

 2.Types of Income Covered

Lower withholding certificates may apply to a wide range of income streams, including: 

• Interest payments 

• Dividend income 

• Royalty and licensing income 

• Fees for professional, technical, or consultancy services 

• Rent, lease, or hire charges 

• Cross-border service payments governed by DTAA 

• Other income categories subject to TDS under relevant sections 

3. Residency and International Applicability

Both resident and non-resident taxpayers are eligible to apply, including: 

• Indian companies and LLPs 

• Foreign companies earning income from India 

• Non-Resident Indians (NRIs) 

• Overseas consultants, freelancers, and service providers 

Non-resident applicants often derive substantial benefits when tax treaties prescribe lower withholding rates, provided documentation and substance requirements are met. 

Securing a Lower Withholding Tax Certificate requires a blend of technical expertise, strategic positioning, and effective engagement with tax authorities. Helios Global offers end-to-end support across the entire lifecycle of the certificate. 

1. Strategic Tax and Treaty Analysis

Our experts conduct an in-depth analysis of: 

• Applicable provisions of the Income Tax Act 

• DTAA articles and interpretations 

• Nature, frequency, and timing of income 

• Historical tax assessments and withholding patterns 

This ensures that applications are robust, defensible, and aligned with prevailing jurisprudence. 

1. Comprehensive Documentation and Financial Modelling

We prepare detailed submissions including: 

• Income projections for the financial year 

• Estimated tax computations 

• Supporting financial statements 

• Past return filings and assessment orders 

• Legal justifications and explanatory notes 

This significantly reduces the likelihood of queries, delays, or rejection. 

1. Filing and Procedural Management

Helios Global manages the entire filing process, including: 

• Preparation and submission of Form No. 13 

• Uploading of supporting documents on tax portals 

• Ensuring accuracy, completeness, and timely submission 

1. Representation and Regulatory Engagement

We represent clients before tax authorities, respond to notices, provide clarifications, and manage correspondence — allowing businesses to focus on operations rather than administration. 

1. Post-Issuance Implementation and Monitoring

Our support continues after issuance. We ensure: 

• Correct implementation of reduced rates by payers 

• Ongoing compliance throughout the validity period 

• Timely renewals or modifications where required 

 Practical Use Cases 

• Foreign consultants providing technical services to Indian clients 

• Multinational group entities charging royalties or management fees 

• Investors earning interest or dividend income 

• Indian companies with seasonal or cyclical income patterns 

In each case, a lower withholding certificate can unlock meaningful cash flow efficiencies.