It seems that due to deletion of two words – ‘no deduction’ in the proposed new Income Tax Bill 2025 will result in removal of the concept of ‘nil TDS’ certificate for both Indian taxpayers and non-residents including NRIs. To understand how big of an impact this removal is, you need to understand when does a taxpayer need a nil TDS certificate? A nil TDS certificate needs to be applied online by a taxpayer when he/she expects to get an income on which no income tax is required to be paid due to any reason.
So, it's like if your actual income tax liability from any income is 0 but Rs 1 lakh TDS is being deducted on this income, then in this situation you can apply for this nil TDS certificate and if it's granted then zero TDS will be deducted. Similarly in case of tax liability being less than the TDS amount you can apply for lower TDS deduction request.
This is the change which the new tax bill 2025 brings- If the current provision of this proposed bill is implemented as it is, you won’t be able to get a nil TDS certificate. But you can still get a lower TDS certificate. So, this means you need to file an income tax return (ITR) even if you are an NRI, to claim back the TDS so deducted and if it's more than your tax liability then get a tax refund. Earlier with the nil TDS certificate you could have avoided all of these processes.
Read below to know more about this change and how you can still manage this situation.
What does this new change made in the new tax bill 2025 means for NRIs and Indians
According to Prashant Khatore, Tax Partner, EY India, this means under the new Income Tax Bill, 2025, both Indians and NRIs can only get a lower TDS certificate and not a nil TDS certificate.
“It may be noted that clause 395 of the proposed Income Tax Bill, 2025 provides for a lower TDS certificate that can be obtained by the payee in case of any payments. The application under clause 395 is not limited to specified sections as it is there in existing section 197 of the Income Tax Act, 1961. Further, the current language of the proposed bill does not provide for a nil TDS. This means that under the new bill, payee may not be able to obtain a certificate of zero withholding by the payer,” says Khatore.
Chartered Account Suresh Surna agrees with Khatore and adds: “The new income tax bill, 2025 proposes a crucial shift which provides that only lower TDS rate certificates will be permitted under the new Section 395, effectively removing the option for obtaining a NIL tax deduction certificate, regardless of the taxpayer’s income profile.”
What did the new tax bill 2025 propose?
The clause 395 of the new income tax bill 2025 said:
Where tax is required to be deducted on any income or sum under this Chapter, then subject to the rules made under this Act,—
(a) the payee may make an application before the Assessing Officer for deduction of tax at a lower rate; and
(b) the Assessing Officer on being satisfied that the total income of the payee justifies a lower deduction, shall issue a certificate as appropriate; and
(c) when a certificate is issued under clause (b), the person responsible for paying the income or amount shall deduct the tax at the rate specified in such certificate till its validity.
Section 197 of the Income Tax Act, 1961 said:
Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.
What is the impact of this new change proposed in the income tax bill, 2025 for NRIs and Indians?
We have asked various experts about the possible impact of this proposed change in language of the new income tax bill, 2025 for NRIs and Indians. Here’s what they said:
Though changes in TDS law bring uniformity but it also introduces a more restrictive tax framework
According to Surana, “The shift from Section 197 of the Income-tax Act, 1961, to clause 395 of the Income-tax Bill, 2025, introduces a more uniform but also more restrictive framework for tax deduction at source (TDS).”
Get lower TDS certificate for all payments instead of specified payments earlier
Experts say that earlier in the Income Tax Act, 1961, lower TDS certificate was limited to specified payments, now under the new tax bill, 2025 no such restrictions apply.
Khatore from EY India says: “Under the new tax bill, 2025 as the application of lower TDS is not limited to certain specified payments, the new bill enhances the scope of obtaining a lower TDS withholding certificate. Now if there is a justification for lower TDS, then the facility is extended to all payments.”
Surana agrees with Khatore and adds that due to this proposed change to include all payments being eligible for lower TDS certificate, it has broadened the scope of the lower deduction of TDS.
“On the other hand, the new income tax bill, 2025 broadens the scope of who can apply for lower TDS certificates to include all types of income, including those previously excluded (e.g., benefits under Section 194R or foreign interest under Section 194LC), now qualify for applying for lower TDS certificates. This reduces uncertainty and promotes greater consistency in TDS administration across different income categories,” says Surana.
Ankit Namdeo, Managing Partner, ANK Advisors agrees with Surana and Khatore and adds: “The proposed expansion of nil/ lower withholding tax certificate to include all payments, from the extent scope of ' specified receipts' would enable a solution oriented approach for various types of transactions and capital receipts such as liquidated damages etc.”
No relief from TDS through nil certificates means blocking of money
According to Khatore, “This proposed change may lead to higher blockage of working capital as going forward the payer may have to withhold some tax which was earlier exempted due to availability of nil withholding tax.”
According to Surana, the removal of the option to obtain a NIL deduction certificate means that even taxpayers with no taxable income (e.g., due to exemptions, losses, or lower thresholds) will still face some level of tax withholding.
“This may go on to affect Start-ups and early-stage businesses in loss situations, Non-residents earning exempt income or income below taxable limits, Tax-exempt entities (such as some charitable trusts and pension funds) etc. Such taxpayers will now need to claim refunds through return filing, which may result in liquidity/ cash flow strain,” says Surana.
Khatore explains that, “Taxpayers who would be having losses or tax exemption and consequently may not be having any tax outflow, would not be able to obtain nil withholding under the new law.”
Government wants to track the transactions hence no nil TDS certificate
According to Ankit Jain, Partner, Ved Jain and Associates, “Tax Deducted at Source (TDS), plays a very important role in the tax system. It helps the Government collect taxes early and regularly, even before people file their tax returns. But more than that, TDS also gives the Government a clear idea of how much income a person or business is earning. This is because when someone deducts TDS, they not only pay tax to the Government but also report the income on which that tax was deducted. That income trail becomes a useful tool in identifying cases where income is not being properly disclosed.
This is likely one of the main reasons why the Government, in the new Income Tax Bill, 2025 is considering doing away with the Nil TDS Certificate. Under the current law, a person can apply for a certificate that allows the payer not to deduct any tax if their income is below the taxable limit. But from the Government’s point of view, this means missing out on valuable data. Without a TDS deduction, there’s no reporting of income either.
Instead of a complete waiver, tax officers in many cases have already been using a practical approach—allowing a very small rate of deduction like 0.1% or even 0.01%. While such small amounts don’t really affect the taxpayer’s liquidity, they do ensure that the transaction is captured and reported. This helps the tax department build a full picture of the taxpayer’s income, even if no real tax is due.
So, if the new tax law replaces the Nil certificate with a very low TDS rate, it’s not so much about collecting more tax—it’s about keeping the income trail visible. In the long run, that makes for a fairer and more transparent tax system for everyone.
So, it's like if your actual income tax liability from any income is 0 but Rs 1 lakh TDS is being deducted on this income, then in this situation you can apply for this nil TDS certificate and if it's granted then zero TDS will be deducted. Similarly in case of tax liability being less than the TDS amount you can apply for lower TDS deduction request.
This is the change which the new tax bill 2025 brings- If the current provision of this proposed bill is implemented as it is, you won’t be able to get a nil TDS certificate. But you can still get a lower TDS certificate. So, this means you need to file an income tax return (ITR) even if you are an NRI, to claim back the TDS so deducted and if it's more than your tax liability then get a tax refund. Earlier with the nil TDS certificate you could have avoided all of these processes.
Read below to know more about this change and how you can still manage this situation.
What does this new change made in the new tax bill 2025 means for NRIs and Indians
According to Prashant Khatore, Tax Partner, EY India, this means under the new Income Tax Bill, 2025, both Indians and NRIs can only get a lower TDS certificate and not a nil TDS certificate.
“It may be noted that clause 395 of the proposed Income Tax Bill, 2025 provides for a lower TDS certificate that can be obtained by the payee in case of any payments. The application under clause 395 is not limited to specified sections as it is there in existing section 197 of the Income Tax Act, 1961. Further, the current language of the proposed bill does not provide for a nil TDS. This means that under the new bill, payee may not be able to obtain a certificate of zero withholding by the payer,” says Khatore.
Chartered Account Suresh Surna agrees with Khatore and adds: “The new income tax bill, 2025 proposes a crucial shift which provides that only lower TDS rate certificates will be permitted under the new Section 395, effectively removing the option for obtaining a NIL tax deduction certificate, regardless of the taxpayer’s income profile.”
What did the new tax bill 2025 propose?
The clause 395 of the new income tax bill 2025 said:
Where tax is required to be deducted on any income or sum under this Chapter, then subject to the rules made under this Act,—
(a) the payee may make an application before the Assessing Officer for deduction of tax at a lower rate; and
(b) the Assessing Officer on being satisfied that the total income of the payee justifies a lower deduction, shall issue a certificate as appropriate; and
(c) when a certificate is issued under clause (b), the person responsible for paying the income or amount shall deduct the tax at the rate specified in such certificate till its validity.
Section 197 of the Income Tax Act, 1961 said:
Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.
What is the impact of this new change proposed in the income tax bill, 2025 for NRIs and Indians?
We have asked various experts about the possible impact of this proposed change in language of the new income tax bill, 2025 for NRIs and Indians. Here’s what they said:
Though changes in TDS law bring uniformity but it also introduces a more restrictive tax framework
According to Surana, “The shift from Section 197 of the Income-tax Act, 1961, to clause 395 of the Income-tax Bill, 2025, introduces a more uniform but also more restrictive framework for tax deduction at source (TDS).”
Get lower TDS certificate for all payments instead of specified payments earlier
Experts say that earlier in the Income Tax Act, 1961, lower TDS certificate was limited to specified payments, now under the new tax bill, 2025 no such restrictions apply.
Khatore from EY India says: “Under the new tax bill, 2025 as the application of lower TDS is not limited to certain specified payments, the new bill enhances the scope of obtaining a lower TDS withholding certificate. Now if there is a justification for lower TDS, then the facility is extended to all payments.”
Surana agrees with Khatore and adds that due to this proposed change to include all payments being eligible for lower TDS certificate, it has broadened the scope of the lower deduction of TDS.
“On the other hand, the new income tax bill, 2025 broadens the scope of who can apply for lower TDS certificates to include all types of income, including those previously excluded (e.g., benefits under Section 194R or foreign interest under Section 194LC), now qualify for applying for lower TDS certificates. This reduces uncertainty and promotes greater consistency in TDS administration across different income categories,” says Surana.
Ankit Namdeo, Managing Partner, ANK Advisors agrees with Surana and Khatore and adds: “The proposed expansion of nil/ lower withholding tax certificate to include all payments, from the extent scope of ' specified receipts' would enable a solution oriented approach for various types of transactions and capital receipts such as liquidated damages etc.”
No relief from TDS through nil certificates means blocking of money
According to Khatore, “This proposed change may lead to higher blockage of working capital as going forward the payer may have to withhold some tax which was earlier exempted due to availability of nil withholding tax.”
According to Surana, the removal of the option to obtain a NIL deduction certificate means that even taxpayers with no taxable income (e.g., due to exemptions, losses, or lower thresholds) will still face some level of tax withholding.
“This may go on to affect Start-ups and early-stage businesses in loss situations, Non-residents earning exempt income or income below taxable limits, Tax-exempt entities (such as some charitable trusts and pension funds) etc. Such taxpayers will now need to claim refunds through return filing, which may result in liquidity/ cash flow strain,” says Surana.
Khatore explains that, “Taxpayers who would be having losses or tax exemption and consequently may not be having any tax outflow, would not be able to obtain nil withholding under the new law.”
Government wants to track the transactions hence no nil TDS certificate
According to Ankit Jain, Partner, Ved Jain and Associates, “Tax Deducted at Source (TDS), plays a very important role in the tax system. It helps the Government collect taxes early and regularly, even before people file their tax returns. But more than that, TDS also gives the Government a clear idea of how much income a person or business is earning. This is because when someone deducts TDS, they not only pay tax to the Government but also report the income on which that tax was deducted. That income trail becomes a useful tool in identifying cases where income is not being properly disclosed.
This is likely one of the main reasons why the Government, in the new Income Tax Bill, 2025 is considering doing away with the Nil TDS Certificate. Under the current law, a person can apply for a certificate that allows the payer not to deduct any tax if their income is below the taxable limit. But from the Government’s point of view, this means missing out on valuable data. Without a TDS deduction, there’s no reporting of income either.
Instead of a complete waiver, tax officers in many cases have already been using a practical approach—allowing a very small rate of deduction like 0.1% or even 0.01%. While such small amounts don’t really affect the taxpayer’s liquidity, they do ensure that the transaction is captured and reported. This helps the tax department build a full picture of the taxpayer’s income, even if no real tax is due.
So, if the new tax law replaces the Nil certificate with a very low TDS rate, it’s not so much about collecting more tax—it’s about keeping the income trail visible. In the long run, that makes for a fairer and more transparent tax system for everyone.
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