Fixed deposits are the safest investment vehicles for most resident Indians. Even today, many of us park our funds in bank fixed deposits and earn interest on them. However, interest income from such deposits is a component of your gross annual income and is not immune to taxation.
High ReturnsGet Returns as high as 15%*
Zero Capital Gains taxunlike 10% in Mutual Funds
Save upto Rs 46,800in Tax under section 80 C
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
Accordingly, banks apply TDS subject to governing Income Tax rules. However, you can prevent it by submitting form 15G or 15H according to your eligibility. So, let us find out more about the TDS application and how to save tax to protect your interest income.
It is a compulsion for banks to apply TDS on interest paid for fixed/term deposits with them across all branches clubbed together if the depositor’s annual interest payout exceeds the stipulated exemption. The current exemption for individuals below 60-years is Rs.40,000, and for senior citizens, Rs.50,000 in a financial year. Moreover, the usual TDS rate is 10% if you have registered your PAN card with the bank. Else, the applicable rate is 20%. However, Form 15G and 15H prevent its application under certain conditions. So, let us dig deeper and find out.
You can submit Form 15G or 15H according to your eligibility at the beginning of a financial year, but before applying the first interest on your term deposits. Since banks club the annual interest payout for deposits across all branches, you can submit the form at your primary bank branch. Banks follow the system of a unique customer ID under the core banking solution and deposit across all their branches with automatic linkage to the ID.
Form 15H: The form is a self-declaration submitted to banks under sub-section (1C) of Section 197A of the Income Tax Act, 1961 and applies to senior citizen depositors. However, the submission of 15H is conditional. Therefore, you must satisfy them for acceptance and processing to prevent TDS application. However, banks apply TDS on the depositor’s aggregate interest income after factoring in Rs.50,000 exemption allowed for senior citizens.
Form 15G: The form is similar to 15H but applies to individual depositors below 60 years. In addition, all the principles in force for Form 15H apply here, except the exemption limit of Rs.40,000. However, Form 15G is a declaration under sub-section (1) and (1A) of Section 197A of the Income Tax Act, 1961.
The vital criterion for submitting Form 15G or 15H is the income threshold beyond which you are liable to pay income tax at the applicable slab rates. So, let us learn about the current income threshold to understand the forms with clarity.
Individuals below 60 years: Rs. 2.5 Lakhs during the financial year
Individuals above 60 but below 80 years (Senior Citizens): Rs. 3 Lakhs during the financial year
Individuals above 80 years (Super Senior Citizens): Rs. 5 Lakhs during the financial year
Here are some indicative features to remember while filing the relevant form to save your interest income from TDS.
Your tax estimate for the previous year must be nil, and you have not paid any income tax, as the taxable income was below the income tax threshold.
You submit the form to the bank/branch from where you collect interest. However, a single form suffices to aggregate interest income from several bank branches under a unique customer ID of the core banking solution.
The ideal time to submit the form is at the beginning of the financial year and before the first interest payment.
You can submit the form if the interest income exceeds Rs.40,000 in a financial year or Rs.50,000 for senior citizens.
You must submit the relevant form for interest income from bonds or debentures exceeding Rs.5000 during the financial year, subject to compliance with the underlying conditions.
Resident Indians and HUFs are eligible to submit the relevant form to protect interest income from TDS
An illustration shall clear the concept further. Accordingly, check the below grid. Again, the variables are hypothetical, considering individuals in various age bands titled A, B, C, and D.
|Age||A - 25 years||B - 50 years||C - 62 years||D - 81 years|
|Section 80 deduction||30000||45000||35000||55000|
|IT income threshold||250000||250000||300000||500000|
|Age criterion||Below 60||Below 60||Above 60||Above 80|
|Interest income below the exemption limit||No||Yes||Yes||Yes|
|Eligible for Form 15G/ 15H||No||Yes (15G)||Yes (15H)||Yes (15H)|
The above grid is an example of different scenarios comprising varied interest income levels and ages. Accordingly, the following inferences emerge.
Individual “A” cannot submit Form 15G as the financial year’s interest income exceeds the income tax threshold, although the taxable income is lower.
Individual “B” can submit form 15G as interest income, and taxable income is below the income tax threshold.
Senior citizens “C” and “D” can submit Form 15H as the interest income, and the taxable incomes are below their income tax thresholds.
The basic income tax threshold applies to Form 15G
Senior citizens can submit Form 15H regardless of the interest income exceeding the income tax threshold. In addition, if taxable income is below the exemption limit and the assessee does not pay any income tax.
Form 15G and 15H play a significant role in preventing TDS application on your interest income, thus depleting your income stream. It primarily affects individuals depending on interest income as a source of livelihood. However, if you forget to submit the form in time and TDS goes to the government, the only way to get a refund is by filing an ITR even though you do not pay any income tax.
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