Lower deduction certificates: TDS and TCS at a certified rate

A Lower Deduction Certificate records a certificate issued by the Assessing Officer that lets a party pay tax at a lower rate, or at nil, instead of the section rate (Form 128 under the Income-tax Act 2025, or Form 13 under the earlier Act). While the certificate is valid and its certified amount still covers the transaction, xMatix withholds at the certified rate. It tracks how much of the limit has been used, and it marks each deduction with remarks code A (lower) or B (nil) for the quarterly return. This page belongs to the TDS & TCS cycle. You record the certificate before the party's bills or invoices are posted. Posting then applies it to the withholding register, and the TDS return reports the certificate number on each row.

Overview

A certificate belongs to one party (a supplier or a customer) and one section. It holds:

• who and what: the party, the certificate number, the section it covers and the issuing form;
• the rate: a certified rate in percent, or Nil Deduction for a nil certificate;
• the limit: Threshold Amount, the total taxable amount the certificate covers (blank means no limit), and Consumed Amount, how much has been used so far;
• validity: Valid From and Valid To;
• Status: Active, Exhausted, Expired or Cancelled.

Only Active certificates are applied.

When to use it

• A supplier sends you a lower or nil deduction certificate for the year, and you must withhold at its rate.
• A customer gives you a certificate for a lower collection rate on the TCS you collect from them.
• A certificate's limit is used up or the party withdraws it, and you need to stop applying it.
• You are checking why a deduction was made at the full section rate even though the party has a certificate.

How xMatix handles it

Every time xMatix computes TDS or TCS for a party on a bill or an invoice, it looks for a certificate that matches all of these:

• the certificate's party is the party on the document (the supplier on a bill, the customer on an invoice);
• the certificate's company (Partner Account Id) is the company on the document;
• the status is Active;
• the certificate covers the section. Either its Tds Section Id is the section row that governs the transaction, or its Section Code equals that row's section code;
• the document's date falls between Valid From and Valid To. A blank date leaves that end open.
• the remaining limit (Threshold Amount minus Consumed Amount) is at least the whole transaction amount for that section, or there is no limit.

When more than one certificate matches, a nil certificate wins over a lower-rate one, and among lower-rate certificates the lowest rate wins.

The certificate only replaces the rate. The section's thresholds still decide whether anything is leviable. If the bill is below the section's single-payment threshold and the year-to-date total is still under the annual threshold, nothing is deducted, with or without a certificate.

When a certificate applies:

• A lower-rate certificate withholds the taxable amount × the certified rate, and the register row gets remarks code A.
• A nil certificate withholds nothing. xMatix still records a register row with zero tax and remarks code B, so the quarterly return can report it, but it posts no journal for that row.
• The register row links to the certificate. The return copies the certificate number into each deductee row.
• The row's taxable amount is added to the certificate's Consumed Amount. When Consumed Amount reaches the Threshold Amount, the status becomes Exhausted and the certificate stops applying.

A certificate needs a PAN. When the party has no PAN, xMatix ignores the certificate and withholds at the section's no-PAN rate with remarks code C.

Prerequisites

• The TDS and TCS setup in TDS & TCS is done: the statutory section catalog is provisioned, and bill and invoice lines are tagged with a TDS Section.
• The party's account has a PAN, and TDS Applicable is not switched off. A party marked as not applicable has no withholding at all, so the certificate has nothing to change.
• You have the certificate itself: number, section, rate (or nil), certified amount and validity dates.
• Your security profile can create Lower Deduction Certificate records (see Permissions).

Procedure

Step 1 — Open the certificate list

1. Open the Finance Setup app and, under Withholding Tax (TDS), open Lower Deduction Certificate. The same list is also in the tax settings app under TDS Setup.
2. Two views are available. All Lower Deduction Certificates shows the full set of columns, including Status and Consumed Amount, and is visible only to you. Active Certificates shows certificate number, party, section code, rate and validity. Despite its name, it has no status filter, so it lists every certificate, including exhausted and cancelled ones. Check the Status column, or filter on it, before relying on it.

Step 2 — Record a new certificate

1. Select New. The form has a header block and three tabs.
2. In the header block, fill in:
   • Name: a label you will recognise, for example the party and year.
   • Certificate Number: the number on the certificate, exactly as issued. It is printed on the return.
   • Party Account Id: the supplier or customer holding the certificate.
   • Tds Section Id: the TDS section the certificate covers (optional when you fill Section Code).
3. On the Certificate tab:
   • Section Code: the statutory section, for example 194C. Fill this in even when you picked a section above. Some sections have two rate rows sharing one code (one for individuals and HUFs, one for others), and the code matches both. A certificate pinned only to one row is not applied when the other row governs the transaction.
   • Issuing Form: 128 (2025 Act, the default) or 13 (the earlier Act).
   • Status: leave it at Active.
4. On the Rate & Cap tab:
   • Rate Override: the certified rate in percent, for example 0.5. Leave it empty for a nil certificate.
   • Nil Deduction: switch it on for a nil certificate.
   • Threshold Amount: the amount the certificate covers. Leave it blank only if the certificate has no limit.
   • Consumed Amount: leave it at 0 for a new certificate. If the certificate was already partly used before you started recording it in xMatix, enter the amount already covered.
5. On the Validity tab, enter Valid From and Valid To as printed on the certificate.
6. Save. The certificate opens with Status Active.

Step 3 — Check the company on the certificate

The certificate only applies to documents of the company stored in its Partner Account Id field. This field is not on the New form. It is filled from the default company in the creating user's company access.

1. Open the certificate from the list.
2. In the Validity panel of the Details tab, check Partner Account Id.
3. If it is empty or shows the wrong company, use the field's edit control on the record page to set the company that books the party's bills or invoices.

If your organisation runs a single company, xMatix may hide the company field. In that case make sure the users who record certificates have a default company in their company access (see Configuration).

Step 4 — Post the party's documents

Nothing else is needed: post the party's bills (or invoices for TCS) as usual. For each section on the document, xMatix looks for a matching certificate as described above. To confirm it worked:

• the withholding register row for the document shows the certified rate, remarks code A or B, and the certificate in its Lower Deduction Certificate field;
• the certificate's Consumed Amount has increased by the row's taxable amount.

A TDS amount override typed on a bill replaces the calculation completely, and no certificate is applied or consumed.

Step 5 — Watch the limit and the dates

• When Consumed Amount reaches Threshold Amount, the status changes to Exhausted by itself, and the next deductions use the section rate.
• When the validity period ends, the certificate stops applying from the day after Valid To, but its status stays Active. Nothing sets Expired automatically. Set it yourself if you want the list to show it.
• Before a large bill, compare the remaining limit with the bill. If the remaining limit is smaller than the bill's amount for that section, the certificate is skipped for the whole amount, not applied to part of it.

Step 6 — Cancel or correct a certificate

• Withdrawn certificate: open it, select Edit, set Status to Cancelled and save. It stops applying to documents posted from then on. Deductions already posted keep their certified rate.
• Typing mistake: correct the field with Edit and save. Deductions already posted are not recomputed. They keep the rate and the certificate link they were posted with.
• Delete (from the list row) removes the certificate from the list. Do this only for a certificate that was never applied, because the return reads the certificate number from it.

Fields

Business rules

On every save, xMatix refuses the certificate with one of these messages:

• "Select the party (deductee/collectee) holding the certificate."
• "Enter the certificate number issued by the Assessing Officer."
• "Pin the certificate to a section (pick a TDS Section or enter its section code)."
• "Enter the certified rate (%), or mark the certificate as nil deduction." when there is no rate (or a negative rate) and Nil Deduction is off.
• "A nil-deduction certificate cannot also carry a rate — clear one of the two."
• "The certified rate cannot exceed 100%."
• "The certified amount cap must be greater than zero, or blank for uncapped."
• "Consumed amount cannot be negative." and "Consumed amount cannot exceed the certified amount cap."
• "Valid To cannot be earlier than Valid From."
• An Issuing Form other than 128 or 13, or a Status outside the four values, is refused as well.

On a new certificate, Issuing Form defaults to 128, Status to Active and Consumed Amount to 0.

At posting:

• The certificate is applied only when its remaining limit covers the whole transaction amount for the section.
• Consumed Amount grows by each applied row's taxable amount. For sections that tax only the amount above a threshold, that is less than the bill amount.
• Status becomes Exhausted when Consumed Amount reaches Threshold Amount.
• Reversing a deduction, for example when a bill's TDS is re-posted with an override, does not give the amount back to the certificate. If you need the limit back, correct Consumed Amount by hand and set the status back to Active.
• A nil certificate's row is kept in the register with zero tax and posts no journal.

Example

A contractor company sends a certificate allowing deduction at 0.5% under section 194C on payments up to 5,00,000 for the financial year. Without the certificate, the contractor would be taxed at the section's rate for companies.

1. The accountant records the certificate: Certificate Number LDC-2627-0042, Party Account Id the contractor, Section Code 194C, Issuing Form 128, Rate Override 0.5, Threshold Amount 500000, Valid From 1 April and Valid To 31 March. On the record page, Partner Account Id shows the company.
2. A bill of 1,20,000 tagged with the 194C section is posted. The single-payment threshold is crossed, the certificate covers 1,20,000, and xMatix withholds 600 (0.5%) with remarks code A. Consumed Amount becomes 1,20,000.
3. A second bill of 4,00,000 arrives. Only 3,80,000 of the limit is left, which is less than the bill, so xMatix skips the certificate and withholds at the full section rate. The certificate stays Active with 3,80,000 left.
4. A third bill of 3,00,000 is covered again: 1,500 is withheld at 0.5%, and Consumed Amount reaches 4,20,000.
5. At quarter end, the TDS return lists the certificate rows with remarks code A and certificate number LDC-2627-0042.

Training

Practice exercise

In a sandbox company, record a nil certificate for a supplier with a PAN: Section Code 194C, Nil Deduction on, Threshold Amount 100000, validity covering today. Check that Partner Account Id is filled on the record page. Then post a bill for that supplier with one line of 60,000 tagged with a 194C section.

Expected result: the bill posts with no TDS journal. The withholding register has a row for the bill with tax 0 and remarks code B, linked to your certificate. The certificate's Consumed Amount is 60,000 and its status is still Active. A second bill of 50,000 is deducted at the section rate, because only 40,000 of the limit is left.

Quick reference

• Record the certificate before posting the party's documents. Posted deductions are never recomputed.
• Always fill Section Code, so the certificate covers every rate row of the section.
• Check Partner Account Id on the record page. Without a company, the certificate never applies.
• No PAN on the party means no certificate: the no-PAN rate applies.
• The remaining limit must cover the whole transaction, or the full section rate applies.
• Exhausted is set automatically; Expired and Cancelled are set by you.
• Nil certificates still create zero-tax register rows with remarks code B.
• A typed TDS amount override on a bill ignores certificates.

Permissions

New, Edit and Delete on certificates follow the entity permission in the user's security profile. In the shipped profiles, standard users, sales executives and system administrators have full access to Lower Deduction Certificate records. There are no server actions to grant: applying and consuming a certificate happens inside bill and invoice posting, under the poster's permissions. A user without access to the Finance Setup app does not reach the list from the menu. See why a user can't see something.

Configuration

• Where the list appears. The Finance Setup app shows it under Withholding Tax (TDS), and the tax settings app shows it under TDS Setup. An administrator can move or hide it in Setup → Design Studio → Apps → Manage Items.
• Sections. Certificates match against the TDS section rows provisioned from the statutory catalog. If a section is re-provisioned with new rows, certificates matched by Section Code keep working; certificates matched only by Tds Section Id may not.
• Party data. PAN, Deductee Type and TDS Applicable on the account decide whether a certificate can apply and which rate row governs. Keep them correct before posting.
• Company default. The certificate's company comes from the creating user's default company in company access. Give the users who record certificates a default company, especially in a single-company organisation where the company field can be hidden. See tenants and companies.
• Statuses and issuing forms are fixed values. Adding picklist values does not help, because the save refuses anything else.
• Views. The seeded Active Certificates view has no status filter. An administrator can add a Status = Active condition to it, or create a new view.

Common problems

"The bill was deducted at the full rate even though the party has a certificate"

Check each match condition in turn. The certificate's company (Partner Account Id) is empty or a different company. The status is not Active. The bill's date is outside Valid From and Valid To. The certificate is pinned only to a Tds Section Id while the other rate row of the same section governed the bill (fill Section Code). The party has no PAN. The remaining limit is smaller than the bill's amount for that section. Or the bill used a typed TDS amount override. Fix the certificate or party, then post the next documents. Already-posted deductions are not recomputed.

"Select the party (deductee/collectee) holding the certificate."

Party Account Id is empty. Pick the supplier or customer and save again.

"Pin the certificate to a section (pick a TDS Section or enter its section code)."

Neither Tds Section Id nor Section Code is filled. Enter the section code at least.

"Enter the certified rate (%), or mark the certificate as nil deduction."

Rate Override is empty and Nil Deduction is off. For a lower-rate certificate enter the rate; for a nil certificate switch on Nil Deduction.

"A nil-deduction certificate cannot also carry a rate — clear one of the two."

Nil Deduction is on and Rate Override is above 0. Clear the rate for a nil certificate, or switch Nil Deduction off.

"Consumed amount cannot exceed the certified amount cap."

You lowered Threshold Amount below what is already consumed, or typed a Consumed Amount above it. Enter a limit at least equal to the consumed amount.

"The certificate shows Active but its dates have passed"

Nothing changes the status at the end of the validity period. The certificate already stops applying after Valid To. Set Status to Expired by hand if you want the list to reflect it.

"The return warns about rows without a certificate number"

The return's validation flags rows with remarks code A or B that have no certificate number. Every saved certificate has a number, so this usually means the certificate was deleted after it was applied. The register rows point at that certificate record, so a new certificate with the same number does not fill the gap. Don't delete a certificate once it has been applied: set it to Cancelled or Expired instead.

Common questions

Does the certificate apply to part of a bill when the limit is almost used?

No. xMatix applies the certificate only when the remaining limit covers the whole transaction amount for that section. If it does not, the whole amount is deducted at the normal section rate and the certificate is not consumed. The remaining limit stays available for smaller documents. If the certified amount must be used exactly, raise the documents so that each one fits within what is left, or handle the split with a typed TDS amount override on the bill, which ignores certificates.

Will xMatix recompute old deductions when I add a certificate late?

No. Deductions are worked out when a document is posted and are not recomputed when a certificate is added or changed. Documents posted before you recorded the certificate keep the section rate. Record certificates as soon as you receive them. If deductions were already made at the wrong rate, correct them through the bill's TDS (for example with a TDS amount override) and adjust Consumed Amount on the certificate by hand if needed.

What is the difference between Exhausted, Expired and Cancelled?

All three stop the certificate from applying, because only Active certificates are used. Exhausted is set automatically when Consumed Amount reaches Threshold Amount. Expired and Cancelled are only set by you: Expired to mark a certificate whose validity has ended (the dates already stop it applying), and Cancelled for a certificate withdrawn by the department or replaced by a new one.

Does a certificate work for TCS as well as TDS?

Yes. The same record is used when xMatix computes TCS on a customer's invoice. Record the certificate against the customer, with the TCS section code, and it is applied, consumed and reported the same way, with remarks code A or B on the collection.

Related topics

• TDS & TCS
• TDS returns
• TDS challans
• Bills
• Lower Deduction Certificate — entity reference
• TDS Transaction — entity reference