Now that we are right in the middle of the financial year, it is time to revisit an old but extremely significant issue — that of saving tax deducted at source (TDS) with the help of filing Forms 15G and 15H. The conditions under which Form 15G and 15H may be filed are similar yet with a significant difference. But some taxpayers end up filing the form when they are not eligible to and vice versa.
Basically, TDS is applicable to any interest above Rs10,000 from most of the common investment instruments such as bank fixed deposits and senior citizens savings scheme etc. Though, TDS, or withholding tax, is in fact tax paid in advance and credit for the same can be claimed while filing the return, the process is quite cumbersome especially for those investors who aren’t liable to file a tax return in the first place.
In other words, from the final tax liability of the taxpayer, the amount representing the TDS has to be reduced and only the balance will be the final tax liability.
However, what happens when the situation reverses? Suppose the final tax liability is lower than the TDS? Or going a step further, the investor may not even be liable to pay any tax (by virtue of his total income being below the exempted slab) and yet the interest income that he earns may have been subjected to TDS. In such cases, the only practical solution is to file the tax return specifying the extra tax paid and request a refund. However, regular taxpayers know only too well how optimistic it is to expect a refund in time, if at all.
Let’s examine the ways and means of preventing one’s income from being subject to the dreaded TDS. Rule 29C of Income Tax Rules offers taxpayers the facility of furnishing Form 15G or 15H, as the case may be, requesting the payer of income not to deduct any tax.
These forms have to be filed in duplicate and once the bank or the post office takes them on record, the entire interest is paid to the investor without any tax deduction.
There are certain conditions under which each form may be filed. Each taxpayer needs to fully understand the specified conditions and ascertain whether he or she is eligible for filing the relevant form. Filing the form without being eligible to do so is illegal and will invite payment of interest on the tax payable and also a penalty.
The main difference between Forms 15G and 15H is that Form 15G is meant for non-senior citizens whereas Form 15H is meant for senior citizens only.
In order to be eligible to furnish Form 15G, the non-senior citizen investor needs to fulfill the following two conditions:
1. The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be nil; and
2. The aggregate of the interest etc. received during the financial year should not exceed the basic exemption slab which is Rs1,80,000 for men and Rs1,90,000 for women.
If both these conditions are satisfied, Form 15G may be furnished to the bank or the post office and the entire interest income can be received without tax deduction.
To further understand these provisions, let’s take the example of Shah, who is 55 years old. Shah’s total income is Rs2,90,000, of which Rs1,90,000 is earned by way of interest from bank deposits. Shah also invests 1,00,000 under Section 80C and pays a medical insurance premium of Rs15,000. Is Shah eligible to furnish Form 15G? This can be ascertained by finding out if he satisfies both the above conditions. The first condition is that Shah’s final tax liability should be nil. Though Shah’s gross income is Rs2,80,000 lakh, on account of his Section 80C and Section 80D deductions of Rs1,00,000 and Rs15,000 respectively, the net income falls to Rs1,75,000 lakh and consequently he is not liable to pay any tax.
Therefore, Shah satisfies the first condition. However, we find that since his interest income of Rs1,90,000 is more than the basic exemption limit of Rs1,80,000. Shah doesn’t satisfy the second condition and hence he is not eligible to furnish Form 15G to the interest paying organisation.
Form 15H imposes just the first condition, in that, the final tax on the investor’s estimated total income computed as per the provisions of the Income Tax Act should be nil. The second condition imposed by Form 15G is not applicable in the case of Form 15H.
For example, say Mehta, 68 years old, has a total income of Rs3,00,000, out of which Rs45,000 is earned from the senior citizens saving scheme and the rest from bank deposits. He invests Rs50,000 in PPF. Now, is he eligible to furnish Form 15H?
As pointed out earlier, all Mehta has to do is to ascertain his final tax liability. It doesn’t matter what amount he receives from which source; this information is irrelevant for Form 15H. We find that Mehta’s net income works out to Rs2,50,000 (Rs3,00,000 - Rs50,000). As the basic exemption limit for Mehta is also Rs2,50,000 (on account of him being a senior citizen), his net tax liability is nil and hence he is indeed eligible to submit Form 15H.
Fresh forms are required to be filed each year. As incomes of investors may differ from year to year, the eligibility for furnishing the forms has to be ascertained every year.
Secondly, for optimum benefit, these forms need to be furnished at the beginning of the fiscal such that the entire amount of interest escapes TDS. If the form is filed during the year, the tax already deducted cannot be adjusted against future tax deductions.
The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at firstname.lastname@example.org