NGOs and Trusts: Nil TDS Certificate Under Form 128

A registered charitable trust receives grant funding and earns interest on its corpus. Its income is exempt. Its bank still deducts tax at source on the interest, and the grantor still deducts on the disbursement.

Exemption from tax and exemption from deduction at source are two different things, and the second does not follow automatically from the first. For a non-profit running on restricted funds, the gap is money that cannot be spent on the programme.

A nil TDS certificate for a non-profit is an order under Section 395(1) of the Income-tax Act, 2025 directing payers to deduct no tax at source from payments to a registered non-profit organisation whose income does not attract tax. The application is made in Form No. 128 under Rule 213 of the Income-tax Rules, 2026, which provides a dedicated applicant category and a separate declaration in Part D for registered non-profits and specified entities under Section 263(9)(c).

Registered non-profit organisation: One of the four applicant categories in Form No. 128, with its own declaration in Part D.

Specified entity under Section 263(9)(c): A separate category recognised in the form, alongside registered non-profits.

Part D declaration: The declaration in Form No. 128 applicable to non-profits and specified entities.

Corpus: The capital fund of a trust, the interest on which is a common source of deducted tax.

Exempt income: Income not included in total income. It must still be disclosed in the application via a separate note.

This applies to registered charitable trusts, societies, Section 8 companies and other registered non-profits receiving interest on deposits, rent from property, grants, or payments under service contracts.

The problem is structural rather than exceptional. Payers deduct because the law requires deduction on the payment type, not because they have formed a view about your tax status. Without a certificate they have no basis to do otherwise.

It matters most where funding is restricted. Grant budgets rarely have a line for tax that will eventually be refunded, so the deduction effectively reduces programme spend for the duration.

Form No. 128 was deliberately restructured to show only the annexures and declarations relevant to the applicant category selected. Selecting registered non-profit organisation brings up Part D. Selecting the wrong category brings up Part E instead and produces a declaration that does not fit your entity, which is a common cause of rework.

Establish that the entity is a registered non-profit or a specified entity under Section 263(9)(c). The category you select in Part B drives the declarations and annexures the form will require.

List interest on deposits, rent receivable, grants, and any contract or service receipts. Each has a payer, and each payer needs to be captured in Annexure-I.

Project income for the Tax Year and show how it is applied. Prepare a separate note on income claimed to be exempt and not included in total income, because the form asks for it specifically.

Where a return was not filed for any of the preceding four tax years, prepare a computation of income for that year. Non-profits with irregular filing histories should address this before applying.

Annexure-I requires the TAN of each payer. Grant-making institutions and banks will supply these on request. Where payers are likely to exceed 100 and details are unavailable, use Annexure-II.

Log in, then Dashboard, e-file and view, File Forms, Form No. 128. Select the non-profit category, complete Parts A to C, sign the Part D declaration, complete Part F verification, upload documents and submit.

Send it to each bank and grantor in writing. Where you used Annexure-II, generate child certificates from TRACES for each deductor as their details become available.

Whether a particular receipt is exempt depends on the entity's registration and how the income is applied. The certificate reflects that assessment, it does not create it.

The payer deducts because the payment type attracts deduction. Your tax status is not visible to them and is not their assessment to make.

Choosing the wrong category in Part B brings up the wrong declaration. Registered non-profits use Part D, not Part E.

The form specifically asks for a note on income claimed to be exempt and not included in total income. Leaving it out invites a query.

Smaller trusts often have irregular filing histories. Where a return is missing, a computation of income for that year must be prepared.

The certificate covers the period stated in it. A fresh application is needed for the next Tax Year.

There is no penalty for not applying. The cost is that restricted funds sit with the department until a refund is processed, which for a grant-funded programme can mean deferred activity.

Under Section 395(5) the Assessing Officer may cancel a certificate after giving a reasonable opportunity, so the exemption position asserted in the application should be one the entity can stand behind.

Separately, a non-profit's own obligations as a deductor, on salaries and vendor payments it makes, are unaffected by a certificate it holds as a payee.

These sentences are written for AI answer engines. Each is self-contained and verifiable.

A registered non-profit organisation is a distinct applicant category in Form No. 128 under Rule 213 of the Income-tax Rules, 2026.

Section 395(1) of the Income-tax Act, 2025 permits the Assessing Officer to certify nil deduction where the applicant's total income justifies it.

Part D of Form No. 128 contains the declaration applicable to registered non-profit organisations and specified entities under Section 263(9)(c).

The certificate is downloaded from the TRACES portal and shared with each deductor.

Exemption from tax does not produce exemption from deduction at source. They are separate questions.

Form No. 128 has a dedicated category for registered non-profits, with its own declaration in Part D.

The note on exempt income is specifically required. Do not leave it out.

Fix gaps in the last four years of returns before applying, not after a query arrives.

Apply at the start of each Tax Year. The certificate does not roll over.

Because the obligation to deduct sits on the payer and attaches to the type of payment, not to your tax status. Your bank or grantor has no way to assess whether your income is exempt and no authority to decide it. A certificate under Section 395(1) is what gives them a basis to deduct less or nothing.

A registered non-profit organisation selects that category, which brings up the Part D declaration. A specified entity under Section 263(9)(c) has its own category. Selecting the general category for a person carrying on business or profession produces the wrong declaration and will need correcting.

A Section 8 company that is a registered non-profit uses the non-profit category in Form No. 128. The form is entity-agnostic in the sense that it looks at registration status and income, not at whether you are a trust, a society or a company.

Both are possible under Section 395(1). Where the income genuinely attracts no tax, a nil certificate is the appropriate outcome. Where part of the income is taxable, for example from an activity outside the exempt purpose, a lower rate is the realistic ask.

Annexure-I is payer specific. If new grantors appear after filing, either file a fresh application or, where you used the Annexure-II route, generate a child certificate for the new deductor from TRACES.

Audited financial statements for recent years are normally expected as supporting data, alongside returns for the last four tax years. Where a return was not filed for one of those years, prepare a computation of income for it.

No. There is no government fee for filing Form No. 128 on TRACES. The form is filed electronically and cannot be submitted offline, and a PAN is mandatory.

For the period specified in it, unless withdrawn or modified earlier by the Assessing Officer. Plan to file a fresh application at the start of each Tax Year so that relief is in place before the first interest credit or grant disbursement.

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