The Income Tax department is currently preparing rules to implement the 2026-27 Budget provision that enables taxpayers to electronically apply for lower or nil TDS certificates. According to reports from PTI, Minister of State for Finance Pankaj Chaudhary informed Parliament on Monday that Section 395(1) of the Income-tax Act, 2025 provides for issuance of certificates for deduction of tax at source at Nil or lower rates. The Finance Act, 2026 has introduced an option for payees to file applications electronically, with certificates to be issued or rejected based on prescribed conditions. As per the latest update from the Finance Ministry, the enabling rule is currently under preparation and shall be notified in due course. The Finance Act, 2026 has further simplified the process by introducing an electronic application system aimed at reducing compliance burdens, particularly for small taxpayers. The new I-T Act, which came into force from April 1, 2026, has significantly streamlined the compliance process by reducing the number of Income rules from 511 to 333 and forms from 399 to 190.
A new compliance process for lower or nil tax deduction certificates has come into effect from April 1, 2026. Under the revamped TRACES system, taxpayers who obtain such certificates through Form No. 128 may need to generate separate child certificates for the people or organisations making payments to them. As reported by Mint, a child certificate is generated by the taxpayer on the TRACES portal based on a lower or nil tax deduction certificate issued by the Assessing Officer. For example, if a consultant receives approval to have tax deducted at 2% instead of the applicable normal rate on certain professional income, the consultant can use Annexure-II of Form No. 128 to obtain the main certificate, then generate separate child certificates for each company making payments. The companies can then deduct tax at the rate specified in the relevant child certificate, with the payer using the child certificate to determine applicable TDS rates while making payments and quoting the certificate number in relevant TDS statements.
Taxpayers can apply for nil or lower TDS certificates for a host of incomes, including salaries, interest on securities, dividend, interest other than interest on securities, payment to contractors, insurance commission, commission on sale of lottery tickets, commission or brokerage, rent, fees for professionals or technical services, and payment of any other income to a non-resident. According to the Income Tax Department's website, any person - resident, non-resident, individual, firm, domestic company, foreign company, etc. - can apply for these certificates. An assessee can apply to the Assessing Officer to issue a nil or lower TDS certificate, with such certificates issued if the estimated tax liability of the assessee justifies no deduction of tax or deduction of tax at a lower rate. Taxpayers typically apply for lower or nil TDS certificates when their actual tax liability is expected to be less than the amount that would otherwise be deducted at source, thereby avoiding excess tax deductions and the subsequent need to claim refunds. For instance, Tax Deducted at Source is deducted at standard rates for different categories - 10 percent on professional fees, 1-2 percent on payments to contractors, or 20 percent on certain payments to non-residents. However, if an individual or small business's total estimated taxable income for the year is less than the basic tax-free exemption limit (or falls into a very low tax bracket), a flat 10 or 20 percent TDS is not applicable, which makes the taxpayer eligible for claiming low or nil TDS.
Under the proposed amendment, taxpayers would be able to electronically apply for lower TDS certificates before the tax authority without the need for physical documentation or repeated visits to tax offices. As reported by PTI, the application will be processed based on information already available on the income-tax portal, including previously filed returns, the Annual Information Statement (AIS), Taxpayer Information Summary (TIS) and Form 26AS. If prescribed conditions are met, the certificate will be issued electronically, while applications with discrepancies may be rejected. The proposed provision aims to make the system faster, more transparent, and entirely paperless, eliminating physical documentation and making the process more convenient for taxpayers. The move is specifically aimed at easing compliance for small taxpayers by reducing paperwork and eliminating the need for physical submission of documents. At present, the option to apply electronically is not available to taxpayers, but the enabling rule is currently under preparation and shall be notified in due course.
The enabling rule is currently under preparation and shall be notified in due course, Chaudhary stated in his written reply to the Lok Sabha. According to Mint, the new electronic system is designed to streamline this process and improve overall taxpayer convenience. The digital framework represents a significant step toward modernizing tax compliance processes for small taxpayers, with the provision especially beneficial for small taxpayers looking to avoid excess tax deductions and the need to claim refunds later. The child certificate facility is relevant where the number of people responsible for deducting tax is likely to exceed 100, but their details are not available when the application is filed. Taxpayers can generate child certificates through the TRACES portal by selecting "Generate and Download Child Certificate issued under section 395(1) (Form No. 128 Annexure-II)" and entering specific payer details. The facility is optional and can be filed by resident as well as non-resident taxpayers, with no statutory limit on the number of times Form No. 128 can be filed in a tax year provided there is a change in estimated income or transactions.
The minister also provided updates on tax administration efficiency, stating that the income tax department disposed of 2.24 lakh appeals in 2025-26, up from 1.11 lakh in 2023-24. As reported by PTI, 2.13 lakh faceless assessments were completed in FY26, lower than 2.73 lakh in FY24. Chaudhary was responding to questions on the number of faceless assessments and appeals disposed of during the last three years, indicating improved tax administration efficiency and digital transformation initiatives. The department completed 2.13 lakh faceless assessments in FY26, compared with 2.73 lakh in FY24, showing a reduction in the number of faceless assessments despite the overall increase in appeal disposals. This demonstrates the department's continued focus on modernizing tax processes and improving service delivery to taxpayers.
In a separate development, Chaudhary informed Parliament that the government realised ₹45,306.05 crore in FY26, comprising ₹16,885.56 crore from disinvestment and ₹28,420.49 crore from asset monetisation. As reported by PTI, the figures highlight the government's continued reliance on sales of stakes in public sector companies and monetisation of public assets to generate non-tax capital receipts. This revenue diversification strategy demonstrates the government's approach to generating funds through various channels beyond traditional tax collections.
