Not liable to pay tax? Submit Form 15G/15H right away to avoid TDS

If your income exceeds 15G/15H limit but you qualify for tax deduction at a lower rate, use Form 13

April is the ideal time to plan your tax strategy for the new financial year. Taxpayers can, for instance, avoid tax deducted at source (TDS) on interest income from fixed deposits (FDs) using Form 15G or 15H. You can also claim exemption from filing an income tax return (ITR) by submitting Form 12BBA.

Forms 15G and 15H

The Income-Tax (I-T) law allows taxpayers to receive certain income (interest, dividends, rent, and insurance commissions) without TDS deduction. Forms 15G and 15H are self-declaration forms that can be submitted by individuals to banks and other financial institutions to avoid TDS on certain types of income. Pratyush Miglani, managing partner, MVAC, says, “Individuals who are not liable to pay income tax can submit these forms.” These are individuals whose incomes are below the basic exemption limit in the new fiscal year and hence have nil tax liability.

Such taxpayers need to furnish a declaration in Form 15G or 15H along with a valid permanent account number (PAN).

Amit Bansal, senior advisor, Singhania & Co, says, “Form 15G is an authorised document that will ensure there is no TDS deduction on the interest you earn from Employees Provident Fund (EPF), recurring deposit, or FD in a given year. This declaration is mandatory for all individuals aged below 60 and for Hindu Undivided Families (HUFs).”

Individual senior citizens need to submit Form 15H. Sandeep Bajaj, managing partner, PSL Advocates & Solicitors, says, “Form 15H is important for retired individuals who earn interest income on their savings bank accounts and FDs.”

These forms must be submitted to the payer either in paper format or electronically after verification. Bajaj says, “This form will need to be submitted at each bank branch from which the individual earns interest income.” Once these forms are submitted to the payer of income along with PAN, the latter will not deduct TDS.

Non-resident Indians (NRIs) can’t avail the benefit of these forms. Those who fail to submit these forms can claim the amount when filing their ITR and seek a refund.

The penalty for a wrong declaration under Form 15G or 15H includes a fine and imprisonment. Miglani says, “The individual may also be liable to pay tax on the interest income earned during the year.”

If your income increases unexpectedly after you have submitted Form 15G or 15H, then you should withdraw the application. Bajaj says, “The bank will deduct TDS from the next interest payment.”

Lower deduction under Section 197

Section 197 of the I-T Act, 1961, allows individuals to apply for a lower or nil TDS on their income. Pallav Pradyumn Narang, partner, CNK, says, “To avail of this, you need to apply to the I-T Department. Include a statement of your estimated income for the relevant financial year and details of the deductions you are eligible for.”

Submit Form 13 for this purpose. Once the application is approved, TDS will be deducted at a lower rate.

Narang says, “This option is better suited for those with higher income than the Form 15G/15H limit who want to reduce their TDS deduction.”

It may take longer to process this request than when you submit Form 15G or 15H.

Valid reasons for seeking lower TDS must be provided. Maneet Pal Singh, partner, IP Pasricha & Co., says, “The reason could be a business loss, low taxable income, or tax exemptions and deductions.” The Assessing Officer (AO) may reject the application if he is not satisfied with the reasons offered or the documents submitted.

Apply before the deduction of TDS begins. Singh adds, “The AO’s order is for one financial year only. The individual needs to apply again for lower TDS in the subsequent year.” It takes around 30 to 45 days to process the application and issue the order.

There is one crucial difference between Section 197 and 197A. Section 197 permits TDS exemption or a lower rate of deduction for individuals earning income through dividends, insurance commissions, rent, etc. Bajaj says, “The exemption under Section 197A (15 G and H) only applies to individuals deriving interest income from deposits.”

Conditions for claiming Section 194P benefit

• This section exempts resident senior citizens aged 75 and above from filing ITR

• The senior citizen’s income should include only pension and interest income

• The interest should be received or receivable from any account maintained by the deductee in a specified bank (as specified by the central government)

• The pension income should be received in the same bank

• The deductee needs to furnish a declaration in Form 12BBA to the bank containing particulars related to pension income