Avoiding TDS can be tedious

Interest receipts of over Rs 5,000 from most of the common investment instruments, such as bank fixed-deposits and Senior Citizens Savings Scheme are subject to tax deduction at source (TDS).

TDS, in fact, is tax paid in advance and credit for the same can be claimed while filing the income tax return. What this means is that the amount representing the TDS has to be deducted from the amount representing the final tax liability of the individual. The amount arrived at is the tax the individual filing the tax return has to pay to the government. The process, though, is quite cumbersome.

So far so good. However, what happens when the situation reverses, i.e., suppose the final tax liability is lower than the TDS already paid? Or, going a step further, where the investor is not liable to pay any tax (by virtue of his total income being below the exempted slab), but the interest income he earns has 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 all too well that it is pointless raising one’s hopes of getting a refund in time, if at all.

That brings us to the old saying — prevention is better than cure. Let us 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 the two forms is that while Form 15G is meant for non-senior citizens, Form 15H is meant for senior citizens only. A senior citizen, as per the Income Tax Act is any person who will complete 65 years of age during the course of the financial year.

In order to be eligible to furnish Form 15G, the non-senior citizen investor needs to fulfill the following two conditions:

• The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be nil, and
• The aggregate of the interest etc received during the financial year should not exceed the basic exemption slab, which is Rs 1,00,000 for males and Rs 1,35,000 for females.
  

If both these conditions are satisfied, Form 15G may be furnished to the bank or the post office and the entire interest income received without tax deduction.

To further understand these provisions, let’s take the example of Conark Shah who is 60 years old. Shah’s total income is Rs 2,00,000, of which Rs 1,25,000 is earned by way of interest from bank deposits. Shah also invests Rs 1,00,000 under Sec. 80C. Is he eligible to furnish Form 15G?

This can be ascertained by finding out if he satisfies both of the above conditions. The first condition is that Shah’s final tax liability should be nil. Though Shah’s gross income is Rs 2,00,000, on account of his Sec. 80C investment, the net income falls to Rs 1,00,000 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 Rs 1,25,000 is more than Rs 1,00,000, Shah doesn’t satisfy the second condition and hence he is not eligible to furnish Form 15G to the interest paying organisation.

Form 15H, on the other hand, imposes just the first condition, i.e., 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.

Let us say, Manekchand Mehta, 68, has a total income of Rs 2,45,000, of which Rs 1,35,000 is earned from the Senior Citizens Savings Scheme and the rest from bank deposits. He invests Rs 60,000 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, for this information is irrelevant in case of Form 15H. We find that Mehta’s net income works out to Rs 1,85,000 (Rs 2,45,000 less Rs 60,000). As the basic exemption limit for Mehta is Rs 1,85,000 (on account of him being a senior citizen), his net tax liability is nil and hence he is indeed eligible for filing Form 15H.

Two additional points. First, fresh forms are required to be filed each year. As the 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.

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