New Tax Bill: Nil TDS Certificate Withdrawn for All Taxpayers Including NRIs

The upcoming Income Tax Bill 2025 proposes to eliminate the concept of ‘Nil TDS’ Certificates for both Resident Indian taxpayers and Non-Resident Indians (NRIs) by deletion of phrase ‘No Deduction’ from the relevant provisions.

Taxpayers typically apply for a nil TDS certificate when they anticipate income that won’t attract any tax liability. For instance if your tax obligation is nil but TDS of ₹1 lakh is being withheld, applying for nil tds certificate can ensure no TDS deduction. In cases where actual tax due is less than the TDS amount, taxpayers can apply to lower their TDS rates.

This is the key change which this 2025 bill can bring. However, if the current provision of this proposed bill is implemented as it is, in this case, you won’t be able to get a nil TDS Certificate. You still have the option to get a lower TDS certificate. It means that you need to file an income tax return (ITR) even if you are an NRI, so that to claim back the TDS deducted and if it’s found to be exceeding your tax liability then you will get a tax refund. If we look at the earlier scenario, the nil TDS certificate could help you avoid all of these processes.

When tax needs to be deducted on any income under this Chapter, then subject to the rules made under this act are:

• The payee may request to Assessing Officer for deducting tax at a lower rate 
• The Assessing Officer, when gets satisfied that the total income of the payee justifies a lower deduction, shall issue a certificate as appropriate 
• When a certificate is issued under clause (b), the person responsible for paying the income or amount shall deduct the tax at the rate mentioned in the 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 does this new change in New Bill 2025 mean for Indians and NRIs?

Many experts say that under this new Income Tax Bill 2025 both Indians and NRIs can only get a lower TDS certificate and not a nil TDS Certificate.

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.

Another expert, CA 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.”

Legal Comparison: Current vs Proposed

Existing Framework (Section 197, IT Act 1961):

• Permitted both nil and lower TDS certificates
• Assessing Officer had discretion based on income assessment

Proposed System (Clause 395, 2025 Bill):

• Maintains reduced TDS rate option
• Excludes nil deduction provision entirely

Practical Implications

1. For Resident Taxpayers
   • Will face TDS deductions regardless of actual liability
   • Must file returns to recover excess deductions
2. For NRIs
   • Loses the advantage of upfront TDS exemption
   • Requires careful financial planning to manage deductions

While this amendment seeks to streamline tax processes, it may create cash flow challenges for taxpayers with legitimate nil tax obligations. Both businesses and NRIs who previously benefited from nil certificates will need to revise their financial approaches.