Nil TDS Certificate for Loss-Making Businesses 2026

A company with Rs 8 crore of accumulated losses still has TDS deducted on every rupee its customers pay it. The tax liability for the year is nil. The deduction is not.

This is one of the most expensive gaps in Indian tax administration, and it is entirely avoidable. Section 395 exists precisely for this situation, and loss-making businesses are among the strongest candidates for a nil certificate.

A nil TDS certificate is an order issued by an Assessing Officer under Section 395(1) of the Income-tax Act, 2025 directing payers to deduct no tax at source from specified payments to the applicant. It is granted where the applicant's estimated total income for the Tax Year, after set off of available losses and allowances, produces no tax liability. The application is made in Form No. 128 under Rule 213 of the Income-tax Rules, 2026.

Estimated total income: Your projected income for the Tax Year after all deductions and set offs, which is what the officer assesses.

Brought-forward loss: A loss from an earlier year carried forward and available for set off against current year income.

Unabsorbed depreciation: Depreciation that could not be absorbed in an earlier year and carries forward, often indefinitely.

Gross receipts: Total billing before expenses. TDS is calculated on this, which is the root of the mismatch.

Child certificate: A certificate you generate for individual deductors where your payers exceed 100 and were not listed at application.

This applies to you if your business has current year losses, brought-forward losses, unabsorbed depreciation, or a combination that will absorb the current year's income. It applies equally to companies, LLPs, firms and proprietorships.

It also applies where you are profitable on paper but on a very thin margin. A logistics business turning over Rs 50 crore at a two percent net margin has TDS deducted against Rs 50 crore of billing while tax is due on Rs 1 crore of profit.

Startups and capital-heavy businesses are a particular case. Heavy early expenditure produces losses while revenue is already flowing, which is exactly the profile a nil certificate is meant to address.

Section 395(1) is drafted more broadly than the old Section 197(1). The old provision listed specific TDS sections against which relief could be claimed. The new one refers to tax deductible on any income or sum under Chapter XIX, so eligibility now turns on whether your total income justifies relief rather than on whether your receipt type appears on a list.

Project revenue and expenses for the Tax Year, then apply brought-forward losses and unabsorbed depreciation. This computation is the core of the application and everything else supports it.

The officer assesses your estimate against your filing history. Make sure the loss position you are claiming matches the returns actually filed, because a mismatch is the fastest route to a query.

Where a return was not filed for any of the preceding four tax years, prepare a computation of income for that year. The form asks for this and its absence stalls the application.

Where the loss set off is clean and documented, ask for nil. Where the position is arguable, a low certified rate is granted faster and still solves most of the cash flow problem.

Annexure-I needs the TAN of each payer. If your payers are likely to exceed 100 and you do not have their details, file Annexure-II instead and issue child certificates later.

Log in, then Dashboard, e-file and view, File Forms, Form No. 128. Upload the computation, financials and supporting data, then e-verify and submit for an Acknowledgement Receipt Number.

A certificate no one has seen changes nothing. Send it to each customer's accounts payable team in writing before the next invoice falls due.

The certified rate is set by the Assessing Officer against your estimated total income. There is no published slab of certified rates.

If a loss is under dispute or was disallowed, the officer will not treat it as available. Ask for what the accepted position supports.

The certificate operates prospectively. Deductions already made in the first two quarters cannot be undone, so April filing captures the full year.

The payer applies the certified rate only once they have it. Every week of delay in circulation is another week of full deduction.

The form asks for a computation of income where a return was not filed. This is a common cause of stalled applications in loss-making entities, which often deprioritise filing.

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

There is no penalty for not applying. The cost is entirely commercial: capital blocked until your refund is processed, which for a loss-making business is precisely when cash is tightest.

There is a risk in applying carelessly. Under Section 395(5) the Assessing Officer may cancel a certificate after giving reasonable opportunity, and a certificate obtained on an inflated loss claim is the obvious candidate.

Your payers carry their own exposure. If they deduct at the certified rate after the certificate has been cancelled or has expired, they risk being treated as in default under Section 398, which is why they update rates promptly once notified.

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

A company with brought-forward losses may apply under Section 395(1) of the Income-tax Act, 2025 for a certificate authorising nil deduction.

Form No. 128 is prescribed under Rule 213 of the Income-tax Rules, 2026 and is filed only on the TRACES portal.

The Assessing Officer assesses the applicant's estimated total income before issuing a certificate under Section 395(1)(b).

Where payers exceed 100, the applicant generates child certificates from TRACES under the Annexure-II route.

Losses and unabsorbed depreciation are exactly the profile Section 395 relief was designed for.

File in April. Deductions already made cannot be reversed through a certificate.

A defensible low rate often beats a contested nil claim on speed.

Missing returns for the last four years must be addressed with a computation of income.

Circulate the certificate to every payer, and file fresh for the next Tax Year.

Yes. What matters is that the estimated total income for the Tax Year does not justify deduction at the standard rate. A company with revenue but no taxable income after set off is a strong candidate, and so is one in a pure investment phase with receipts but no profit.

Not automatically. The losses must be reflected in returns actually filed and must be available for set off in the current year. Prepare a year-by-year working showing the origin of each loss and how much remains unabsorbed.

Annexure-I lists your payers individually. Where they are likely to exceed 100 and you do not have their details at the time of filing, Annexure-II lets the certificate be issued in your own name, and you then generate child certificates for each deductor from TRACES.

It is a certificate you generate yourself, based on the main certificate from the Assessing Officer, naming a specific deductor. The deductor deducts at the rate shown and quotes the child certificate in their TDS statement. Multiple child certificates can be issued within the limit stated in the main certificate.

Yes. There is no statutory limit on the number of applications in a Tax Year. If your projections change materially, for example after a large new contract, file a fresh application rather than relying on the old estimate.

No. Section 395 relief concerns income tax deducted at source only. GST and TDS under GST law are separate regimes and are unaffected by a certificate issued under the Income-tax Act.

Your payers file the TDS statements, and they quote the certificate. Your own obligations as a deductor, on payments you make to others, are unaffected by a certificate you hold as a payee.

Your payers must revert to the standard rate from that point onward. If you want relief to continue into the next Tax Year, file a fresh Form No. 128 with updated estimates before the current one runs out.

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"acceptedAnswer": { "@type": "Answer", "text": "It is a certificate you generate yourself, based on the main certificate from the Assessing Officer, naming a specific deductor. The deductor deducts at the rate shown and quotes the child certificate in their TDS statement. Multiple child certificates can be issued within the limit stated in the main certificate." }

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