What is a Lower Tax Deduction Certificate (LTDC)?
- In India, whenever you pay certain types of vendors (professionals, contractors, etc.), you’re required to deduct TDS (Tax Deducted at Source) at a fixed rate prescribed under the Income Tax Act (e.g., 10% under Section 194J for professional services).
- Sometimes, the vendor’s income level, exemptions, or business situation means that the standard rate is too high for them, leading to excess tax being deducted.
- To avoid this, the vendor can apply to the Income Tax Department (via Form 13 under Section 197 of the Income Tax Act). If approved, the department issues a Lower Tax Deduction Certificate (LTDC).
Purpose of LTDC
- It allows the payer (you) to deduct TDS at a reduced rate (or sometimes at NIL rate), instead of the standard rate.
- Example: Instead of deducting 10% TDS, you may only need to deduct 2% if the vendor has an LTDC.