There is absolutely no doubt that fixed deposits is the most popular investment options with the masses. The reason is simple. It offers steady rate of interest unlike the volatility witnessed in equities. But it is also true that unlike saving account and recurring deposit, it is not free from tax deducted at source (TDS) by the banks. So whatever interest you earn is deducted for tax before it becomes payable to you. However, the good news is that you can save tax deduction on your fixed deposit income. This can take place through form 15G and form 15H. These are available at all branches of the banks. Or you can download the same through your internet banking and submit at your nearest branch. These are pre-printed blank forms.
Under Section 197A of the Income Tax Act, 1961, as a resident individual you are entitled to receive interest on various instruments without deduction of tax if your estimated total income of the previous year is less than the minimum exemption limit of say Rs 2 lakh, provided you are a male individual. If interest payment arising in your hand exceeds Rs 10,000, all banks and financial institutions will apply tax deducted at source on you. You must note that this limit applies to one whole financial year and to each branch separately. In some cases, you are asked to submit these forms even if the interest is less than Rs 10000.
The tax so deducted is deposited in the government coffers on behalf of you. Later you are issued a TDS certificate like you get from your workplace. This is Form 16 A which carries details of your TDS like the amount, PAN of the deductor etc.
If the deposit is made for a longer duration like for a span of 5 years where the interest is paid out on maturity, the banks will still deduct tax at source but on the accrued interest for the year. This is despite the fact that you are not paid the interest.
Let’s find out more about each form individually:
It is a self-declaration form which is to be provided by you if you are a resident individual of India and not a company. This has to be filled when you satisfy two conditions. Firstly, your total income after deduction should be less than the exemption limit. Secondly, the amount of interest income from all sources also shouldn’t exceed the minimum exemption limit (Rs 190,000) under tax slab. It can also be filed by the Hindu Undivided Family (HUF).
You must remember that you need to satisfy both the conditions separately, though. Even if after all deductions your income amounts to less than exemption limit, but the total amount of interest exceeds the exemption limit you are not eligible to fill this form and claim the benefit of saving tax deducted at source.
For instance if you are a 38 year old male individual and your interest income due next year is Rs 90,000(which is below the minimum exemption limit of 250,000 as per recently announced tax slab), but after deduction the total income(including interest) is Rs 190,000( below minimum exemption limit), you can submit the form 15 G. This way you can get fixed deposit interest without any deduction. On the other hand, if you earn an interest income of Rs 90,000 but total income after deduction stands at Rs 270,000( which is above the basic exemption limit of Rs 250,000), you are not eligible to fill the form and take advantage of tax free income on your fixed deposits.
Things to keep in mind
So you need to fulfill both the conditions for form 15 G to work in your favour. You must remember that you have to fill and submit this form in triplicate. You get to retain one copy with yourself.
However, each form is valid only for one financial year. In case your fixed deposit runs through two financial years, you have to fill the form again in the second financial year to avail the benefit.
The waiver is effective from the last interest payment or reinvestment date or from 1st April, whichever is later.
Form No. 15H
Unlike form 15G, the form 15 H has to be filled by you if you are a resident individual but sixty years or above of age during the financial year and your total income is less than basic exemption limit for the financial year. So if you are a 65 year old person and have interest income of Rs 2.55 lakh but your total income after deduction is stands at Rs 2.45 lakh, you are eligible to fill form 15 G, but had your total income exceeded basic exemption limit, you would not have been mandated to fill the form and avail the benefits.
In order to take advantage of these forms make sure to submit you PAN details. If you do not provide your PAN details, banks are more likely to deduct TDS at 20% instead of 10% even though you have submitted two forms mentioned above. So in the absence of PAN, all exemption forms submitted will get invalid. Remember to take acknowledgement of the forms 15 G and 15 H by way of stamp of the bank on the form returned to you.
You might find out that that tax has already been deducted. In order to avoid this situation, it is better to fill these forms in the beginning of the financial year. Once tax has been deducted it cannot be reversed. All you have to do is to mention the same in the income tax return to claim the refund benefit. But bank would in no way return the deducted tax to you.
Also note that you still have to file your income tax return despite submitting Form 15H or 15G with your banks. The latter is only an option to prevent TDS and not a substitute for not filing tax returns. If your total income is above the minimum exemption limit, you have to file tax return.
If you are an Non Resident Indian(NRI), you cannot avail the benefit by just filling these forms. Under section 195(3), you have to contact jurisdictional tax officer to obtain a certificate of non-deduction or lower deduction of taxes. If the officer grants you the waiver, you will submit this to your bank and claim exemption of the same. However, granting the waiver is up to the officer and may take place not so easily.