Exemptions and Reduced Rates Under Sections
197 and 197 A 
Use
Under sections 197 and 197 A of the Income Tax Act, the Income Tax Department can grant companies exemptions from having tax withheld from payments to them, or reduce the withholding tax rates.
You need to record this information in the system and report it in TDS returns.
Activities
Customizing
Define separate withholding tax codes for calculating withholding taxes at the reduced rates and for exemptions.
Make the additional settings for the withholding tax codes in Customizing for Financial Accounting (FI), by choosing Financial Accounting Global Settings ® Withholding Tax ® Extended Withholding Tax ® Basic Settings ® India ® Exemptions and Reductions.
Master Data
Enter the appropriate withholding tax codes in your vendor masters as normal. Do not enter any exemption reasons.
Reporting
When you prepare a TDS return, it shows how many rupees’ worth of business you have taxed at a reduced rate, and how much was exempt from tax.
See also:
Vendor Master (Withholding Tax Data)