How to save TDS on Interest Income?

By | December 22, 2016

What can you do to make sure bank does not deduct TDS on interest, if your total income is not taxable?

The simple thing you can do is:-

Form 15G and Form 15H are forms you can submit to make sure TDS is not deducted on your income if you meet the conditions mentioned in the Act.

If you go through the instructions mentioned on your FD certificate, it usually mentions: “If the depositor is not liable to pay income tax and the interest to be paid in a financial year does not exceed the maximum amount which is not chargeable to income tax, the depositor may submit a declaration in Form No. 15G / Form No. 15H, so that income tax is not deducted at source.” What does the statement mean.

Banks have to deduct TDS when interest income is more than Rs.10,000 in a year. The bank includes deposits held in all its branches to calculate this limit. But if your total income is below the taxable limit, you can submit Form 15G and Form 15H to the bank requesting them not to deduct any TDS on your interest.

What is Form 15G and Form 15H?

Form 15G and Form 15H are forms you can submit to make sure TDS is not deducted on your income if you meet the conditions mentioned below. Also, you must have a PAN before applying for these forms. Some banks allow these forms to be submitted online through the bank’s website.

Form 15G and Form 15H are valid for one financial year. So you have to submit these forms every year if you are eligible. Submitting them as soon as the financial year starts will ensure the bank does not deduct any TDS on your interest income.

Form 15G and Form 15H are self-declaration forms required to be furnished by the assessee to his banker for nil deduction / lower deduction of TDS (tax deducted at source) on interest on fixed deposit.

Form 15G / Form 15H is a self-declaration, which is provided by a person resident in India (not being a company or firm) to their deductor that the tax on his estimated total income for the previous year, will be nil. The duty to submit these forms with assessee before end of the financial year or first payment of interest whichever is earlier.

Form 15H is for senior citizens, those who are 60 years or older; while Form 15G is for everybody else.

The tax deducted is directly paid to the government on the behalf of the customer. The bank issues a TDS Certificate also called Form 16A which mentions the details of the TDS payment with the government. The bank will deduct tax at source once the amount of interest to be credited in respect of all the fixed deposits taken together exceeds Rs. 10,000 in a financial year. This limit of Rs. 10,000 is applicable for each branch of a bank and not for all the branches of a bank taken together.

Conditions you must fulfill to submit Form 15G:

  1. You are an individual or HUF
  2. You must be a Resident Indian
  3. You should be less than 60 years old
  4. Tax calculated on your Total Income is nil
  5. The total interest income for the year is less than the minimum exemption limit of that year, which is Rs 2,50,000 for financial year 2015-16. (Limit is Rs 2.5lakhs for FY 2014-15, FY 2015-16 and FY 2016-17)

Conditions you must fulfill to submit Form 15H:

  1. You are an individual
  2. You must be a Resident Indian
  3. You are 60 years old or will be 60 years old during the year for which you are submitting the form
  4. Tax calculated on your Total Income is nil

Purposes for which Form 15G / Form 15H can be submitted:

While these forms can be submitted to banks to make sure TDS is not deducted on interest, there a few other places too where you can submit them.

  1. TDS on EPF withdrawal TDS is deducted on EPF balances if withdrawn before 5 years of continuous service. If you have had less than 5 years of service and plan to withdraw your EPF balance of more than Rs 50,000 (Rs 50,000 effective 1 st June 2016, Rs 30,000 prior to that), you can submit Form 15G / Form15H. However, you must fulfil conditions (listed above) to apply for these forms, i.e. tax on your total income including EPF balance withdrawn should be nil.
  2. TDS on income from corporate bonds – If you hold corporate bonds, TDS is deducted on them if your income from them exceeds Rs 5,000. You can submit Form 15G/Form15H to the issuer requesting non-deduction of TDS.
  3. TDS on post office deposits – Post offices which are digitised also deduct TDS and accept Form 15G/Form15H if you meet the conditions applicable for submitting them.
  4. LIC premium receipts – Starting October 2014, if the amount received from a policy is more than Rs 1,00,000 and it is taxable, TDS at 2% shall be deducted by the insurer before making payment. You can submit Form 15G/Form15H to request that no TDS be deducted since tax on your total income is nil.
  5. TDS on rent TDS is deducted on rent if total rental payment in a year exceed Rs 1.8lakhs. If tax on your total income is nil, you can submit Form 15G/Form15H to request the tenant to not deduct TDS.(applicable from 1 st June 2016)

Forgot to submit Form 15G and Form 15H:

A lot of taxpayers forget to submit Form 15G and Form 15H timely. In such a situation TDS may already be deducted by the bank.

What should one do about extra TDS deducted –

  • File your income tax return to claim refund of TDS The only way to seek a refund of excess TDS deducted is by filing your income tax return. Banks or other deductors cannot refund TDS to you, since they have already deposited it to the income tax department. Income tax department will refund excess TDS, after you file an income tax return.
  • Submit Form 15G and Form 15H immediately – TDS is usually deducted quarterly. If you forgot to submit Form 15G/Form 15H, don’t worry. Submit it at the earliest available opportunity, so that no TDS is deducted for the remaining financial year.

Some Important Points to be noted:-

  1. HUF can submit Form 15G if it meets the conditions but Form 15H is only for individuals.
  2. NRIs cannot submit Form 15G or Form 15H, these can only be submitted by resident Indians.
  3. You must submit at each branch of the bank from which you will receive interest income. Although, TDS is deducted when total interest earned from all branches exceeds Rs 10,000 in total.
  4. Form15G/Form15H is only a declaration that no TDS should be deducted on your interest income since tax on your total income is nil. Interest income from fixed deposits, recurring deposits, and corporate bonds is always taxable.
  5. Interest income from fixed deposits and recurring deposits is taxable. You should submit this form only if tax on your total income is zero (and you meet other conditions listed in the Act).
  6. If you submitted Form 15G/ Form 15H but you have taxable income, then you must intimate to your bank that tax on your total income is not zero. The bank will make changes and deduct TDS. You should report the entire interest income in your tax return and pay tax on it as applicable.
  7. These forms don’t have to be submitted to the income tax department by you. When you submit them to the deductor, he/she will prepare and submit to the income tax department, a detail of all such forms received.

Some important information for deductors:-

If you are a TDS deductor, the income tax act requires that you should allot a UIN (Unique identification number) to all the persons who submit a Form 15G/Form15H. A statement of Form 15G/Form15H must be filed by you on a quarterly. This statement has details of Form 15G and Form 15H submitted and incomes on which no TDS was deducted due to submission of these forms. You must retain these forms for 7 years.

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