Lower Deduction Certificate for Non Residents in 2026 (Form 128)

Written by CA Nandini, Krystal7 Consultants. Last updated 1 October 2026.

A non resident that wants less tax deducted from its Indian income applies in Form 128. The law is section 395(1) of the Income Tax Act, 2025 and rule 213 of the Income Tax Rules, 2026. Form 128 replaced Form 13 and section 197 from 1 Apr 2026. The applicant files it on TRACES, with a PAN, before the payment. The Assessing Officer issues a certificate in the payer's name for a stated amount and period. The payer deducts at that rate and quotes the certificate number in Form 144.

This page covers who can apply, the documents, how the officer sets the rate and what the payer does next, with a UK SaaS example. INR 1,00,000 is one lakh (100,000), and INR 1,00,00,000 is one crore (10 million).

What is a lower or nil deduction certificate under section 395?

A lower or nil deduction certificate tells an Indian payer to deduct tax at a rate below the normal rate, or not at all. The Assessing Officer issues it under section 395(1)(b) when the payee's total income justifies the lower rate. The payee applies in Form 128. The payer then deducts at the certificate rate until it expires.

The normal rate is often far above the real tax. Section 393(2), serial 17 of the Income Tax Act, 2025 makes a payer to a non resident deduct at the "rates in force". For a foreign company, that is 20 percent on royalty and technical fees and 35 percent on other income. Surcharge and cess go on top, and the rate applies to the gross receipt.

Section 395(1) opens with "Where tax is required to be deducted on any income or sum under this Chapter, then subject to the rules made under this Act". It then has three clauses.

1. Clause (a). "The payee may make an application before the Assessing Officer" for a lower rate or no deduction.
2. Clause (b). The officer, "on being satisfied that the total income of the payee justifies" it, "shall issue to him a certificate as appropriate".
3. Clause (c). The payer "shall deduct the tax at the rate specified in such certificate", or deduct nothing, "till its validity".

Old section 197 listed the sections it covered; CBDT's transition FAQ Q4.9 names section 395(1) as its successor. A certificate does not decide the final tax. The assessment of the non resident's return does.

What replaced Form 13 and section 197?

From 1 Apr 2026, section 395(1) of the Income Tax Act, 2025 replaced section 197 of the Income Tax Act, 1961. Form 128 under rule 213 of the Income Tax Rules, 2026 replaced Form 13, and Form 129 replaced the payer's Form 15E.

Topic	Income Tax Act, 1961 and 1962 Rules	Income Tax Act, 2025 and 2026 Rules
Payee's lower or nil deduction certificate	Section 197(1)	Section 395(1)(a) and (b)
Payer deducts at the certificate rate	Section 197(2), until the officer cancels it	Section 395(1)(c), "till its validity"
Cancellation	Rule 28AA, any time before expiry	Section 395(5), after a reasonable opportunity to the applicant; rule 213(7)
Application form	Form 13, rule 28	Form 128, rule 213(1)
Factors the officer weighs	Rule 28AA(2)	Rule 213(3)
Validity and scope	Rule 28AA	Rule 213(7) and 213(8)
Non resident with an Indian branch receiving sums without TDS	Section 195(3), Forms 15C and 15D	Section 395(1), rule 209, Form 126
Payer's application to fix the taxable part	Section 195(2), Form 15E	Section 395(2), rule 214, Form 129
Electronic route to a prescribed authority	None	Section 395(6), conditions not yet prescribed
Lower tax collection certificate	Section 206C(9)	Section 395(3)
Quarterly TDS statement for non residents	Form 27Q	Form 144, with a "Certificate Number u/s 395" field
Remittance information	Form 15CA, Part B	Form 145, Part B, rule 220
Treaty documents from the payee	Section 90(4), Form 10F	Section 159(8), Form 41, rule 75
Return exemption where TDS covers the tax	Section 115A(5)	Section 207(8)

Sources: sections 395 and 159 of the Income Tax Act, 2025; rules 209, 213, 214 and 220 of the Income Tax Rules, 2026; guidance notes on Forms 126, 128, 129 and 144; section 197 and rule 28AA of the old law; read 1 Oct 2026.

Our note on the Income Tax Act, 2025 maps the other sections a foreign owned company uses.

Who can apply for Form 128, and for which payments?

Any person, resident or non resident, can file Form 128 (FAQ Q2). A non resident uses it for royalty, fees, interest, business receipts and capital gains. Form 128 is optional (FAQ Q3), online only on TRACES (FAQ Q8), and "cannot be submitted without a PAN" (FAQ Q10).

One group should use a different form. Rule 213(2) says rule 213(1) "may not be applicable" to a person eligible for a no deduction certificate under rule 209. Rule 209 covers foreign banks, insurers and other non residents with an Indian branch.

A non banking branch needs five years of business in India. It also needs fixed assets in India above INR 50,00,000. Both groups need five years of returns and no default. They apply in Form 126, which merged Forms 15C and 15D. Dividends and certain interest on securities are outside it.

Payment to a foreign company	Normal TDS rate before surcharge and cess	Can a Form 128 certificate lower it?	When a certificate helps most
Royalty, including software licences	20%, section 207(2)	Yes	The income is not royalty under the treaty and there is no PE, so India cannot tax it
Fees for technical services	20%, section 207(2)	Yes	The treaty's make available test fails, or a PE earns a thin net margin
Interest on a foreign currency loan	20%, section 207(1)	Yes	Rarely needed; the treaty rate with a TRC and Form 41 usually matches the tax
Rupee interest and other income	35%, Finance Act, 2026 Part II	Yes	Almost always, because 35% of gross is far above tax on net income
Contract or business receipts with a PE in India	35% as other income	Yes	The PE pays tax on profit, and the margin is small
Long term capital gains on unlisted shares or Indian property	12.5%	Yes	The gain is a fraction of the price the buyer pays
Interest and other sums to a branch that meets rule 209	As above	Use Form 126 instead	Rule 213(2) points to rule 209

Sources: sections 207 and 393 of the Income Tax Act, 2025; First Schedule to the Finance Act, 2026; rules 209 and 213; read 27 Sep 2026 and 1 Oct 2026.

Our guide to TDS on payments to non residents explains each rate.

What does Form 128 ask for?

Form 128 has six parts and three annexures. Parts A to C cover the applicant, the certificate wanted and the tax position. Parts D and E are declarations, and Part F is the verification. Annexure I lists each payer by TAN, section, estimated sum and requested rate.

Part	What it asks	Points for a non resident
Part A	Name, address with country, status, PAN, residential status, email, contact number with country code	Select the non resident status; the PAN is compulsory
Part B	Who is filing (non profit, specified entity, business or profession, other) and which certificate is wanted	We tick the business or profession category for a foreign company with business income in India
Part C	Existing liabilities under both Acts; estimated total income and tax; exempt income; advance tax, TDS and TCS; returns for the four preceding tax years	Where no return was filed for a year, attach a computation of income for it
Part D	Declaration for registered non profit organisations and specified entities	Not relevant to a foreign company
Part E	Declaration that "the applicant has furnished the returns of income for last four tax years for which such returns became due"	Check the filing history before signing
Part F	Verification that "no relevant information has been concealed"	Signed by the authorised signatory
Annexure I	Section and table serial, payer's TAN or PAN, estimated sum for the tax year, requested rate	Enter "0" for a nil rate
Annexure II	The same, without payer details, where payers are likely to exceed 100	Needs an uploaded note justifying the certificate under rule 213(9)
Annexure III	Lower tax collection under section 395(3)	Rarely relevant to a non resident

Source: Form No. 128 (rule 213), Income Tax Department, read 1 Oct 2026.

The form has no field for a tax residency certificate (TRC), Form 41 or a permanent establishment (PE). The TRC and Form 41 are treaty requirements under section 159(8). In our practice we upload them, with PE declarations, beside the computation and the note.

What documents does a non resident need for Form 128?

The official list covers the PAN, payer details with TAN, a computation of income and tax, past returns and prepaid taxes. A treaty claim also needs a TRC and Form 41 for the tax year under section 159(8). The PE and beneficial ownership declarations are our practice.

Document	Where the requirement comes from	What we prepare for a foreign company
PAN	Form 128 FAQ Q10	Apply for a PAN as a foreign company before anything else
Payer details, including TAN	Guidance note; Annexure I	Each Indian payer's name and TAN, from its invoices or purchase orders
Computation of estimated total income and tax for the tax year	FAQ Q6; rule 213(3)(a)	Projected Indian receipts per payer, the treaty or domestic analysis, and the tax
Computation of income for any of the four preceding years without a return	FAQ Q6; Form 128 footnote	A short computation for each such year, even if the answer is nil
Note on income claimed exempt or not taxable	FAQ Q6	The treaty note: article, reasons, and how the facts meet it
Last four years' returns, audit reports and financial statements	Guidance note ("if required")	Indian returns if any, plus the global audited accounts
Advance tax, TDS and TCS credits to date	Guidance note; rule 213(3)(d)	Extract from Form 168 (old Form 26AS)
Tax residency certificate	Section 159(8)(a), for any treaty position	A TRC from the home tax authority covering the tax year
Form 41	Section 159(8)(b); rule 75, once per tax year	Filed online for the same tax year before the application
No PE declaration	Our practice; the treaty PE and business profits articles	Signed by a director, listing staff, premises and agents in India
Beneficial ownership declaration	Our practice; treaty royalty and fees articles	Signed by a director
Contracts and payment schedule	Our practice; needed to fill the Annexure I amounts	Master agreement, order forms and a month by month billing estimate
For a PE: Indian accounts and profit attribution	Our practice; rule 213(3)(a)	Project accounts and the attribution method

Sources: guidance note, form and FAQs on Form 128; section 159 of the Income Tax Act, 2025; guidance note on Form 41; read 27 Sep 2026 and 1 Oct 2026.

The note is the heart of the file. In two pages, it explains why the tax is lower than the default deduction. Check that the TRC period covers the payments in the application.

How do you file Form 128 on TRACES?

Log in to TRACES as a taxpayer with the PAN and open Dashboard > e-file and view > File Forms > Form No. 128. Fill the form and annexures, upload the documents, verify electronically and submit. TRACES issues an Acknowledgement Receipt Number (ARN). The officer may raise questions online before deciding.

The steps follow FAQ Q9.

1. Register the PAN on TRACES (www.tdscpc.gov.in) as a taxpayer.
2. Fill Parts A to F and Annexure I (named payers) or Annexure II (more than 100 unnamed payers).
3. Upload the computation, the note and the supporting documents.
4. Verify electronically, submit and note the ARN (FAQ Q16).
5. Download the certificate from Dashboard > Downloads > Lower/Nil Deduction/Collection Certificates (FAQ Q11).

FAQ Q5 sets no limit on filings in a tax year, and FAQ Q7 allows withdrawal until processing. A foreign company has no Indian address, so pick the TRACES state and district with care. Keep them the same on later filings.

How does the Assessing Officer work out the certificate rate?

Rule 213(3) lists four factors. They are tax on the year's estimated income, tax on the last four years' income, existing liabilities, and taxes paid this year. The officer sets a rate that collects the expected tax from the remaining payments.

Factor	Rule 28AA(2), Income Tax Rules, 1962	Rule 213(3), Income Tax Rules, 2026	What we put in front of the officer
Tax on the estimated income of the year	Clause (i)	Clause (a)	Projected receipts, the treaty or domestic analysis, and the tax
Tax on returned, assessed or estimated income of the last four years	Clause (ii)	Clause (b)	Past returns, or computations for years without one
Existing liability	Clause (iii): Income Tax Act, 1961 and Wealth Tax Act, 1957	Clause (c): the 2025 Act and the 1961 Act	Status of any demand, with proof of payment or stay
Advance tax, TDS and TCS for the year to date	Clause (iv)	Clause (d), as on the date of application	Form 168 extract and challans

Sources: rule 28AA of the Income Tax Rules, 1962 and rule 213 of the Income Tax Rules, 2026, read 1 Oct 2026.

Wealth tax dropped out. No rule gives a formula; our reading of rule 213(3) gives this working.

1. Work out the tax on the year's estimated Indian income, under the treaty where it applies.
2. Add any existing demand that is not stayed or paid.
3. Subtract advance tax, TDS and TCS already credited for the year.
4. Divide the balance by the receipts still to come from the payers in the application.

If the requested rate is far below past years under clause (b), the note must explain what changed.

A worked rate for a foreign contractor with a PE

A foreign engineering company has a project office in India that counts as a PE. One Indian customer will pay it INR 10,00,00,000 in the tax year. It has already received INR 50,00,000, with tax deducted at 37.128 percent. That is 35 percent, plus 2 percent surcharge and 4 percent cess, because the year's payments exceed INR 1,00,00,000.

Line	Amount (INR)
Profit attributable to the PE (8% of receipts)	80,00,000
Tax at 35%	28,00,000
Surcharge (total income not above INR 1,00,00,000)	Nil
Cess at 4%	1,12,000
Estimated tax for the year	29,12,000
Less TDS already deducted (37.128% of 50,00,000)	18,56,400
Balance tax to collect	10,55,600
Receipts still to come	9,50,00,000
Rate that collects the balance	1.111%
TDS on the remaining receipts without a certificate (37.128%)	3,52,71,600

Without a certificate, the customer would deduct INR 3,52,71,600 against a remaining tax of INR 10,55,600. See the corporate tax rates guide for the 35 percent rate.

Rate outcomes in four common cases

Each rate assumes no other Indian income, demand or prior deduction.

Case	Receipts in the tax year (INR)	Default TDS rate	Default TDS (INR)	Estimated Indian tax (INR)	Rate that matches the tax
UK SaaS company, no PE, subscription treated as royalty by customers	3,00,00,000	20.8%	62,40,000	Nil, if business profits with no PE	Nil
Foreign contractor with a PE, 8% margin	10,00,00,000	37.128%	3,71,28,000	29,12,000	2.912%
NRI selling an Indian flat, price above gain, gain of INR 50,00,000	1,50,00,000 (price)	14.95% on the price	22,42,500	6,50,000	4.333%
US parent receiving royalty at the treaty rate with TRC and Form 41	2,00,00,000	15%	30,00,000	30,00,000	15%, so a certificate adds nothing

Sources: Finance Act, 2026, First Schedule, Part II, and our arithmetic; rates read 27 Sep 2026.

In the NRI row, the buyer deducts 12.5 percent plus 15 percent surcharge and 4 percent cess on the full price. The seller's tax is 12.5 percent on the INR 50,00,000 gain plus cess. No surcharge applies, because the income does not exceed INR 50,00,000.

How long does a certificate take, and how long is it valid?

No section or rule sets a deadline for the officer to decide a Form 128. Rule 213(7) limits the certificate to the part of the tax year it states. Rule 213(8) limits it to the named payer and amount. It cannot cover a payment already made, and each tax year needs a new application.

FAQ Q4 says to apply "well before the date of transaction". An application "cannot be processed once the transaction involving TDS/TCS is completed". The guidance note says Form 128 "may be filed any time during the Tax Year for which the certificate is sought". For Form 13, TRACES issued Instruction 01/2020 of 24 Jan 2020 on receiving applications before the start of the financial year. We found no equivalent for Form 128 as at 1 Oct 2026. Check on TRACES in March whether the next tax year is open; if not, file on the first working day of April.

Under Form 13, Pr. DGIT (Systems) Notification 8/2018 of 31 Dec 2018 sent higher value cases to senior officers. TRACES also lists a procedure notification of 27 Sep 2023. We found no procedure notification for Form 128 as at 1 Oct 2026.

Stage	When	Source
Tax year starts	1 April	Section 3 of the Income Tax Act, 2025
TRC covering the year obtained and Form 41 filed	Before the first payment; Form 41 once per tax year	Section 159(8); rule 75
PAN in place and TRACES registration done	Before filing	Form 128 FAQ Q10
Form 128 filed	During the tax year, "well before the date of transaction"	Guidance note; FAQ Q4
ARN received	On submission	FAQ Q16
Officer review and clarification requests	No statutory time limit	Section 395; rule 213
Certificate issued and downloaded by payee and payer	On approval	FAQ Q11; rule 213(8)
Payments at the certificate rate	Until the period ends, the amount is used up, or the officer cancels	Section 395(1)(c) and (5); rule 213(7) and (8)
Form 144 for the quarter, citing the certificate	31 Jul, 31 Oct, 31 Jan and 31 May	Rule 219
Certificate lapses	By 31 March at the latest	Rule 213(7)
Non resident files its Indian return	By the section 263 due date	Section 207(8)

Sources: Form 128 guidance note and FAQs; section 395 of the Income Tax Act, 2025; rules 75, 213 and 219 of the Income Tax Rules, 2026; TRACES circulars list; read 27 Sep 2026 and 1 Oct 2026.

Rule 213(8) issues the certificate "in the name of the person responsible for deducting" the tax. It covers "a specified payment from the specified deductor, to the extent of the amount specified in the certificate". Section 395(5) lets the officer cancel it "after giving reasonable opportunity to the applicant". A certificate that arrives in December covers only four months of payments.

What does the Indian payer do with the certificate?

The payer checks that the certificate names its TAN, then deducts at the certificate rate while the period and amount last. Above INR 5,00,000 in the year, it files Form 145 Part B, with no Form 146. In Form 144, it gives the lower deduction reason and the "Certificate Number u/s 395".

Section 395(1)(c) says the payer "shall deduct" at the certificate rate, so it cannot keep the higher rate for safety.

Step	What the payer does	Reference
1	Download the certificate on TRACES and check the TAN, PAN, rate, amount and period	Rule 213(8); FAQ Q11
2	Set up the rate in the payables system for that vendor only	Section 395(1)(c)
3	Track cumulative credits against the certificate amount	Rule 213(8)(a)
4	Deduct at the earlier of credit and payment, at the certificate rate	Section 393(2), serial 17; section 395(1)(c)
5	File Form 145 before the remittance: Part B once the year's payments exceed INR 5,00,000, with no Form 146	Rule 220
6	Deposit any tax deducted by the 7th of the next month, or 30 April for March	Rule 218(2)
7	File Form 144 with the lower deduction reason and the certificate number	Section 397(3)(b); guidance note on Form 144
8	Issue Form 131 within 15 days of the Form 144 due date	Rule 215
9	Return to the normal rate once the period ends, the amount runs out or the officer cancels	Section 395(5); rule 213(7) and (8)
10	Keep the certificate and the working on file	Our practice

Sources: section 395 and rules 213, 215, 218, 219 and 220; guidance note on Form 144; read 27 Sep 2026 and 1 Oct 2026.

Rule 220 puts a payment in Part B where the year's payments exceed INR 5,00,000. It also needs a certificate or order "from the Assessing Officer under section 395(1) or (2)". Part C, with Form 146, covers other taxable payments above that limit. So a certificate removes the Form 146 cost. Our Form 15CA and 15CB guide covers all four parts.

We found no CBDT circular, FAQ or TRACES note on whether surcharge and cess go on top of a certificate rate. We read section 395(1)(c) as making the stated rate the full rate. We ask the officer to word the certificate that way, and the payer follows its wording. In the Form 144 field "as per IT Act or DTAA", we pick the Act option.

A nil certificate still means reporting the payment in Form 144, with the reason and the certificate number.

When is a treaty claim alone enough?

A treaty claim alone is enough when the treaty rate equals the real tax and the payer accepts it. A US or UK royalty at 15 percent is the usual case. A certificate earns its cost when the real tax is below the treaty rate. It also helps when payers deduct on income India cannot tax, or a PE pays tax on net profit.

The treaty route needs no officer. Section 2(90) defines "rates in force" for section 393(2) to include the rate in a treaty under section 159(1) or (2). Section 159(4) applies the Act only "to the extent they are more beneficial". So a payer holding the TRC and Form 41 deducts at the treaty rate directly. That route should always come first.

Situation	Treaty claim alone (TRC and Form 41)	Form 128 certificate
Royalty or fees taxed at a flat treaty rate, and the payer accepts the treaty	Enough	Adds nothing
Income not taxable under the treaty, and payers deduct nil	Enough; the payer files Form 145 Part C with Form 146 where the Act charges the sum	Optional; removes the Form 146 cost
Income not taxable under the treaty, but payers still deduct at 15% or 20.8%	Not enough in practice	Worth it when the blocked tax is material
A PE in India pays tax on net profit	No help; the treaty does not cap business profit tax	Usually essential
Capital gain where the price is far above the gain	Usually no help; Indian property and many share gains stay taxable in India	Usually essential
Indian losses cut the year's tax	No help	Helps; rule 213(3)(a) works on the year's estimated tax
More than 100 Indian customers	Each payer needs the TRC and Form 41	Annexure II and child certificates
No TRC available yet	Domestic rate applies	A domestic law computation can still support a lower rate

Sources: sections 2(90), 159 and 393 of the Income Tax Act, 2025; rules 213 and 220; read 27 Sep 2026 and 1 Oct 2026.

The costs are a PAN, an Indian return, the application work and a repeat every tax year.

The home country matters too. Section 33 of the UK Taxation (International and Other Provisions) Act 2010 limits credit relief. The cap is the foreign tax payable had the company taken all reasonable steps, including treaty claims, to minimise it. Excess Indian tax is then a refund claim in India, not a UK credit.

See our cross border tax advisory guide and how to avoid permanent establishment risk.

Can the Indian payer apply instead with Form 129?

Yes. Under section 395(2) and rule 214, the person paying a non resident can apply in Form 129. The officer fixes the part of the payment that is chargeable to tax, and the payer deducts only on that part. Form 129 replaced Form 15E.

Point	Form 128	Form 129	Form 126
Who applies	The payee, resident or non resident	The payer of a non resident	A non resident bank, insurer or branch business meeting rule 209
Section and rule	Section 395(1); rule 213	Section 395(2); rule 214	Section 395(1); rule 209
Old form	Form 13	Form 15E	Forms 15C and 15D
What the officer decides	A lower or nil rate	The proportion of the sum chargeable to tax	Receipt of interest and other sums without deduction
Factors	Rule 213(3)	Rule 214, the same four factors for the recipient	Five years of returns, no default, branch conditions
Validity	Period of the tax year and amount stated; named payer	The named non resident and the period stated	The tax year stated
Renewal	New application; no limit on filings	New application after expiry or within three months before it	New application after expiry or within three months before it
Where filed	TRACES	TRACES	TRACES, or the NRI services portal for applicants outside India

Sources: guidance notes on Forms 126, 128 and 129; rules 209, 213 and 214; section 395; read 1 Oct 2026.

The Form 129 guidance note asks for contracts, the computation of gains, the TRC, Form 41, four years of income details and a note on taxability. It says to file "before the remittance is done". We use Form 129 for one large payment, such as a share purchase. We use Form 128 for recurring income.

What about the electronic route under section 395(6)?

The Finance Act, 2026 inserted section 395(6) from 1 Apr 2026. It lets the payee file the same application before a prescribed income tax authority, "subject to such conditions as may be prescribed". That authority decides "on electronic verification of the contents of the application". As at 1 Oct 2026, we found no rule or notification prescribing the authority or conditions. The route is not yet usable.

The Budget 2026 FAQs say "the category of taxpayers and other related conditions will be prescribed by the Board by making rules in this regard". An application goes either to the Assessing Officer or to the prescribed authority, not both. Nothing says non residents will qualify, so plan on the Assessing Officer route for 2026-27.

Do certificates issued under section 197 still work?

Yes, in two cases. A section 197 certificate keeps governing deductions on payments or credits made by 31 Mar 2026, even when the tax is deposited later. It also stays valid for payments from 1 Apr 2026 if it was issued for projected receipts of tax year 2026-27. Any other old certificate does not cover 2026-27 payments.

CBDT's transition FAQs deal with both cases. Under Q2.11, deductions on payments or credits up to 31 Mar 2026 stay under the 1961 Act. That holds even if the tax reaches the Government after 1 Apr 2026. Q2.12 says the certificate "shall remain valid for payments/credits made on or after 1st April, 2026". The condition is issue "in respect of projected receivable for tax year 2026-27".

We found no FAQ on a Form 13 still pending on 31 Mar 2026. We would file a fresh Form 128 for tax year 2026-27 rather than wait.

Does a certificate end the non resident's Indian filings?

No. A non resident with a lower or nil certificate usually must file an Indian return. Section 207(8) excuses a return only for section 207 income taxed at no less than the section 207 rate. A certificate below that rate fails the test. A foreign company with a PE files in any case.

The return claims the treaty position and recovers tax deducted before the certificate arrived. Our income tax return service covers non resident returns. The officer can still take a different view at assessment. Keep the certificate file consistent with the return.

What changed in 2026

The Income Tax Act, 2025 and the Income Tax Rules, 2026 took effect on 1 Apr 2026. The substance stayed the same, but the section, rule and form numbers changed. The Finance Act, 2026 added an electronic route that is not yet open.

Item	Until 31 Mar 2026	From 1 Apr 2026	Instrument
Lower or nil deduction certificate	Section 197, Form 13, rules 28 and 28AA	Section 395(1), Form 128, rule 213	Income Tax Act, 2025 (Act 30 of 2025); Income Tax Rules, 2026 (G.S.R. 198(E), 20 Mar 2026)
Scope wording	Listed sections, including section 195	Tax deducted "on any income or sum under this Chapter", subject to rules	Section 395(1)
Factors for the rate	Rule 28AA(2), including Wealth Tax Act liability	Rule 213(3), liability under both income tax Acts	Income Tax Rules, 2026
Payer's application	Section 195(2), Form 15E	Section 395(2), Form 129, rule 214	Income Tax Rules, 2026
Branch receipts without deduction	Section 195(3), Forms 15C and 15D	Section 395(1), Form 126, rule 209	Income Tax Rules, 2026
Electronic route	None	Section 395(6), conditions not yet prescribed	Finance Act, 2026 (Act 4 of 2026), from 1 Apr 2026
Quarterly statement	Form 27Q	Form 144, with "Certificate Number u/s 395"	Income Tax Rules, 2026, rule 219
Remittance form	Form 15CA, Part B	Form 145, Part B	Rule 220
Old certificates	Valid for their period	Valid for 2026-27 payments only if issued for projected 2026-27 receipts	CBDT transition FAQs Q2.11 and Q2.12

Sources: section 395; rules 209, 213, 214, 219 and 220; guidance notes on Forms 128, 129, 126 and 144; CBDT transition FAQs; Budget 2026 FAQs; read 1 Oct 2026.

Worked example

A UK SaaS company billing INR 3,00,00,000 a year to Indian customers

CloudCo Limited is a UK company selling project management software by subscription to 40 Indian business customers. They pay INR 3,00,00,000 a year, an even INR 25,00,000 a month. The largest pays INR 48,00,000. CloudCo has no staff, office, servers or dependent agent in India. It had no PAN at the start of tax year 2026-27.

The customers treat the subscription as royalty under section 9(6), which covers a right to use computer software. With no TRC or Form 41, each deducts 20 percent plus 4 percent cess. No customer pays above INR 1,00,00,000, so no surcharge applies.

Under the India UK treaty, our reading is different. After Engineering Analysis (Supreme Court, 2 Mar 2021), a subscription that gives no right in the copyright is not treaty royalty. Under Article 13(4), technical fees must be ancillary to a royalty or make available technical knowledge. Routine software access does neither.

So the income is business profit under Article 7, which India taxes only through a PE. CloudCo has none. Facts decide each case, and the note must show them.

Line	Domestic rate, no paperwork	Treaty claim alone	Form 128 nil certificate
What CloudCo files	Nothing	TRC, Form 41, PAN or rule 217 details, declarations	All of the treaty items, plus Form 128 with Annexure I listing 40 TANs
How customers deduct	20.8% on all INR 3,00,00,000	Customers paying INR 1,80,00,000 accept the treaty view and deduct nil; customers paying INR 1,20,00,000 deduct 15% as treaty royalty	Nil, within each customer's certificate amount
TDS in a full tax year (INR)	62,40,000	18,00,000	Nil
Indian tax actually due (INR)	Nil on our reading	Nil on our reading	Nil on our reading
Excess to recover through an Indian return (INR)	62,40,000	18,00,000	Nil
Form 145 part for customers above INR 5,00,000 a year	Part C with Form 146	Part C with Form 146, because the Act charges the sum and the treaty relieves it	Part B, no Form 146
Indian return needed?	Only to claim the refund	Yes, section 207(8)	Yes, section 207(8)

Sources: sections 9, 159, 207 and 395 of the Income Tax Act, 2025; India UK treaty; rule 220; our arithmetic.

The split in the treaty column is an assumption. A treaty claim helps only as far as each customer accepts it.

The decision runs in two steps.

1. Treaty claim first, always. The TRC and Form 41 cost little. In our example they cut the TDS from INR 62,40,000 to INR 18,00,000, and the certificate needs them anyway.
2. Form 128 when customers will not deduct nil. CloudCo waits for a refund of the remaining INR 18,00,000. UK credit does not cover tax the treaty does not allow.

Rule 213(8) limits each certificate to the amount stated for that customer. We estimate each customer's billing and add room for upgrades.

What applying now, on 1 Oct 2026, achieves

A certificate covers only payments after it issues. Suppose CloudCo files Form 128 in October and the certificate takes effect from 1 Dec 2026.

Period of tax year 2026-27	Billing (INR)	TDS under the treaty claim mix (INR)	TDS with the certificate (INR)
April to November 2026, before the certificate	2,00,00,000	12,00,000	12,00,000
December 2026 to March 2027, under the certificate	1,00,00,000	6,00,000	Nil
Whole year	3,00,00,000	18,00,000	12,00,000

The treaty mix averages 6 percent (INR 18,00,000 on INR 3,00,00,000). A late certificate saves INR 6,00,000 against the treaty mix, or INR 20,80,000 against the domestic rate. CloudCo reclaims the INR 12,00,000 through its 2026-27 return. For 2027-28, it files as early as TRACES allows.

Above 100 Indian customers, Annexure II applies. The certificate issues in CloudCo's name under rule 213(9), and CloudCo generates child certificates on TRACES (FAQ Q13 to Q15). UK groups with an Indian subsidiary should read our note on transfer pricing between a UK parent and an Indian subsidiary.

Common mistakes

1. Filing after the payment. FAQ Q4 bars processing once the transaction is complete. Fix: file before the first invoice of the tax year.
2. Starting without a PAN. Form 128 cannot be submitted without one. Fix: get the PAN first.
3. Expecting one certificate to cover every customer. Rule 213(8) ties each certificate to the named deductor. Fix: list every TAN in Annexure I, or use Annexure II above 100 payers.
4. Letting a customer exceed its certificate amount. Fix: track billing against each amount and refile before it runs out.
5. Assuming the certificate rolls over. Rule 213(7) limits it to one tax year. Fix: diarise a fresh application for April.
6. Dropping the TRC and Form 41. Payments outside the certificate still need them. Fix: renew both each tax year.
7. Forgetting existing demands. Rule 213(3)(c) counts liabilities under both Acts. Fix: pay or stay any old demand first.
8. Payer buying a Form 146 for a covered payment. Rule 220 puts it in Part B. Fix: file Part B.
9. Payer leaving nil lines out of Form 144. Fix: report every payment with the reason and certificate number.
10. Relying on an old section 197 certificate. FAQ Q2.12 keeps it only if issued for projected 2026-27 receipts. Fix: read its basis.
11. Waiting for the section 395(6) route. Fix: apply to the Assessing Officer now.
12. Treating a nil certificate as final. Fix: file the return and keep it consistent with the note.

Checklist for a Form 128 application

1. Map each Indian income stream by payer, amount and month for the tax year.
2. Decide the tax position under section 9 and the treaty, and compare it with the default and treaty rates.
3. Obtain a PAN for the non resident if it has none.
4. Obtain a TRC for the tax year and file Form 41.
5. Sign the no PE and beneficial ownership declarations.
6. Collect each payer's TAN and estimate its payments for the year.
7. Prepare the rule 213(3) computation, and computations for past years without a return.
8. Write the note on why the tax is below the default deduction.
9. Clear or document any existing demand under either Act.
10. File Form 128 on TRACES with Annexure I or II, and record the ARN.
11. Answer the officer's clarification requests promptly.
12. Send the certificate to each payer and track payments against each amount.
13. File the Indian return by the section 263 due date.
14. Reapply as early as TRACES allows for the next tax year.

To have us review a Form 128 file before it goes in, send the contracts and the billing plan through our contact page.

Frequently Asked Questions

Is Form 13 still accepted after 1 Apr 2026?+

No. Form 128 under rule 213 of the Income Tax Rules, 2026 replaced Form 13 for applications from 1 Apr 2026. Its guidance note describes it as the application under sections 395(1) and 395(3). Under CBDT's transition FAQ Q2.12, an old section 197 certificate covers 2026-27 payments only if issued for projected 2026-27 receipts.

Can a non resident without a PAN file Form 128?+

No. Form 128 FAQ Q10 says the form "cannot be submitted without a PAN". A foreign company must obtain a PAN before it registers on TRACES. The PAN is also needed for Form 131 and for the Indian return that section 207(8) usually requires after a lower deduction certificate.

Does a foreign company need past Indian returns to apply?+

Not necessarily. Form 128 asks about returns of the four preceding tax years. Its footnote says that where a return was not filed, the applicant attaches a computation of income for that year. The Part E declaration covers only years "for which such returns became due".

Can one Form 128 cover several Indian payers?+

Yes. Annexure I of Form 128 takes one line per payer, with the section, table serial, TAN, estimated sum and requested rate. Rule 213(8) then ties each certificate to the named payer and amount. A SaaS business with 40 Indian customers lists all 40.

What if a non resident has more than 100 Indian customers?+

Use Annexure II of Form 128. Rule 213(9) applies where payers are likely to exceed 100 and their details are not available. The certificate issues in the applicant's name. The applicant then generates a child certificate on TRACES for each customer (FAQ Q13 to Q15).

Can a Form 128 certificate cover payments already made?+

No. Form 128 FAQ Q4 says an application "cannot be processed once the transaction involving TDS/TCS is completed". Tax already deducted at the normal rate stays deducted, and the non resident claims the excess through its Indian return. So we file at the start of the tax year for recurring income.

How long is a lower deduction certificate valid?+

Rule 213(7) makes it valid for the period of the tax year stated in it, unless cancelled earlier. Rule 213(8) limits it to the named payer and the stated amount. It ends at the earliest of the period end, 31 March, the amount running out, or cancellation under section 395(5).

Is there a time limit for the officer to decide Form 128?+

No. Section 395 of the Income Tax Act, 2025 and rule 213 of the Income Tax Rules, 2026 set no time limit. The Form 128 FAQs only tell applicants to file "well before the date of transaction". We file early and answer clarification requests quickly, because the certificate saves nothing until it issues.

Can the officer cancel a certificate?+

Yes. Section 395(5) of the Income Tax Act, 2025 lets the Assessing Officer cancel a certificate under section 395(1) or (3). The officer must first give "reasonable opportunity to the applicant". Rule 213(7) also allows cancellation before the period ends. The payer then returns to the normal rate on later payments.

Does the payer need Form 146 when the payee holds a certificate?+

Not for covered payments. Rule 220 sends them to Part B of Form 145 once the year's payments exceed INR 5,00,000. Part B applies where a section 395(1) or (2) certificate or order exists. Part B needs no Form 146. Payments outside the certificate fall back to Part C, or Part D if the Act does not charge them.

What does the payer enter in Form 144 for a certificate payment?+

The Form 144 annexure has fields for the "Reason for non/lower/higher Deduction" and the "Certificate Number u/s 395". The payer selects the lower deduction reason and enters the certificate number. It reports nil deduction lines too. Form 144 replaced Form 27Q and is due quarterly under rule 219.

Does a non resident still need a TRC and Form 41 if it has a certificate?+

Usually yes. Where the lower rate rests on a treaty, the officer needs the TRC and Form 41 that section 159(8) makes conditions of treaty relief. Form 128 has no field for them, so we upload them with the note. Payments beyond the certificate also fall back on them.

Can the Indian payer apply instead of the non resident?+

Yes. Under section 395(2) and rule 214, the payer files Form 129 (old Form 15E). The officer fixes the proportion of the sum chargeable to tax, and the payer deducts only on that part. The Form 129 guidance note says to file it before the remittance.

What is Form 126 and who uses it?+

Form 126 under rule 209 lets a non resident's Indian branch receive interest and other sums without deduction, but not dividends. It suits a foreign bank or insurer, or a branch business with five years in India and fixed assets above INR 50,00,000. It merged old Forms 15C and 15D.

Can a non resident use the section 395(6) electronic route?+

Not yet. Section 395(6), inserted by the Finance Act, 2026 from 1 Apr 2026, allows an application to a prescribed authority that verifies it electronically. The Budget 2026 FAQs say the Board will prescribe the eligible taxpayers, conditions and authority by rules. None were prescribed as at 1 Oct 2026.

Does a nil certificate mean the income is exempt?+

No. A certificate under section 395(1) only sets the rate of deduction for a period. The non resident files its Indian return, and the Assessing Officer can take a different view of the treaty, the PE or the gain. Keep the return consistent with the Form 128 note.

Is there a fee for filing Form 128?+

Section 395 and rule 213 of the Income Tax Rules, 2026 prescribe no fee for Form 128. The real costs are the PAN, the TRC, Form 41, the computation and note, and the Indian return that usually follows.

Can a Form 128 application be withdrawn or filed again?+

Yes. Form 128 FAQ Q7 allows withdrawal until the application is processed. FAQ Q5 says there is no statutory limit on Form 128 filings in a tax year. A non resident can file again when a new customer signs or a certificate amount runs out.

What happens when the certificate amount runs out mid year?+

Rule 213(8) limits the certificate to the amount stated for each payer. Beyond it, the payer deducts at the normal rate, or the treaty rate with a TRC and Form 41. File a fresh Form 128 for the extra amount before the next invoice.

Sources

• Income Tax Department, Guidance note on Form No. 128 (application for lower or nil deduction under section 395(1) and 395(3)), read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-128
• Income Tax Department, Form No. 128 Frequently Asked Questions (Q1 to Q16), read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/form-128-faqs
• Income Tax Department, Form No. 128 [see rule 213], read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/form-no-128-1
• Income Tax Department, Section 395 of the Income Tax Act, 2025 (certificates, including section 395(6) inserted by Act 4 of 2026), read 1 Oct 2026, https://www.incometaxindia.gov.in/w/section-395-6
• Income Tax Department, Rule 213 of the Income Tax Rules, 2026, read 1 Oct 2026, https://www.incometaxindia.gov.in/w/rule-213-1
• Income Tax Department, Rule 214 of the Income Tax Rules, 2026, read 1 Oct 2026, https://www.incometaxindia.gov.in/w/rule-214-1
• Income Tax Department, Rule 209 of the Income Tax Rules, 2026, read 1 Oct 2026, https://www.incometaxindia.gov.in/w/rule-209-1
• Income Tax Department, Rule 220 of the Income Tax Rules, 2026 (Form 145 parts), read 1 Oct 2026, https://www.incometaxindia.gov.in/w/rule-220-1
• Income Tax Department, Guidance note on Form No. 129, read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-129
• Income Tax Department, Guidance note on Form No. 126, read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-126
• Income Tax Department, Guidance note on Form No. 144, read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-144
• Income Tax Department, Section 2(90) of the Income Tax Act, 2025 (rates in force), read 1 Oct 2026, https://www.incometaxindia.gov.in/w/section-2-263
• Income Tax Department, Section 197 of the Income Tax Act, 1961, read 1 Oct 2026, https://www.incometaxindia.gov.in/w/section-197
• Income Tax Department, Rule 28AA of the Income Tax Rules, 1962, read 1 Oct 2026, https://www.incometaxindia.gov.in/w/rule-28aa
• CBDT, FAQs on Interplay and Transition from the Income Tax Act, 1961 to the Income Tax Act, 2025 (Q2.11, Q2.12, Q4.9 to Q4.11), read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/81799/11848482/Updated-FQAs-on-Interplay&Transitions.pdf/e10ad2b6-9495-de90-58d3-20606d8954ae?t=1775128640970
• Income Tax Department, FAQs on Budget 2026 (simplified procedure under section 395), February 2026, read 1 Oct 2026, https://www.incometaxindia.gov.in/documents/20117/15766092/FAQs-Budget-2026+Updated.pdf/daf54d14-aca9-c4ea-b786-598fd2f8d4c4?t=1771846962606
• Pr. Director General of Income Tax (Systems), Notification No. 08/2018, procedure for Form 13 applications, 31 Dec 2018, https://www.incometaxindia.gov.in/documents/d/guest/notification_8_2018_tds-pdf
• TRACES, Circulars, Notifications and Instructions (Instruction 01/2020 of 24 Jan 2020; Notification 02/2023 of 27 Sep 2023), read 1 Oct 2026, https://traces61contents.tdscpc.gov.in/en/circulars-notifications-instructions.html
• TRACES, online tutorial on requesting Form 13 as a non resident (2016), read 1 Oct 2026, https://traces61contents.tdscpc.gov.in/docs/E-tutorial-%20Request%20for%20Form%2013-%20Non%20Resident.pdf
• Income Tax Department, Section 9 of the Income Tax Act, 2025 (sections 9(6), 9(9)(d) and 9(11)), read 1 Oct 2026, https://www.incometaxindia.gov.in/w/section-9-1
• Income Tax Department, Section 159 of the Income Tax Act, 2025 (treaty relief, section 159(4), TRC and Form 41), read 1 Oct 2026, https://www.incometaxindia.gov.in/w/section-159-89
• Income Tax Department, Section 207 of the Income Tax Act, 2025 (including section 207(8)), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-207-78
• Income Tax Department, Section 393 of the Income Tax Act, 2025 (Table in section 393(2), serial 17), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-393-6
• Income Tax Department, Section 397 of the Income Tax Act, 2025 (Form 144 and Form 145), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-397-6
• Income Tax Department, Guidance note on Form No. 41, read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-41
• Income Tax Department, FAQs and Guidance Notes on Forms as per Income Tax Rules, 2026 (form map), read 27 Sep 2026, https://www.incometaxindia.gov.in/faqs-and-guidance-notes-on-forms-as-per-income-tax-rules-2026
• Income Tax Department, India UK DTAA, GSR 91(E), 11 Feb 1994, and protocol S.O. 372(E), 10 Feb 2014, read 27 Sep 2026, https://www.incometaxindia.gov.in/w/uk-comprehensive-agreements-1
• Income Tax Department, First Schedule to the Finance Act, 2026 (Part II rates), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/first-schedule-104
• UK Government, Taxation (International and Other Provisions) Act 2010, section 33 (limit on credit: minimisation of the foreign tax), read 1 Oct 2026, https://www.legislation.gov.uk/ukpga/2010/8/section/33
• Supreme Court of India, Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax, 2 Mar 2021, https://api.sci.gov.in/supremecourt/2011/38137/38137_2011_33_1501_26629_Order_02-Mar-2021.pdf