Form 15G and 15H are used to avoid tax deduction at source on mutual fund dividends if your tax liability is expected to be nil

Depositors and investors in fixed-income instruments may be familiar with the Form 15G or 15H. These forms are widely used by investors to avoid the tax deducted at source (TDS), if their liability is otherwise expected to be nil. As dividends are taxed in the hands of investors from April 1, 2020, the mutual fund investors also have the option of submitting the relevant form to avoid TDS.

Why should you submit these forms?

Till March 31, 2020, mutual funds used to collect dividend distribution tax (DDT) on mutual funds and dividends were tax free in the hands of investors. For equity schemes, it was 11.64 percent and for non-equity funds, it was 29.12 percent for individual investors. The DDT so collected was paid to the government by mutual funds. However, the Finance Act 2020 changed the rules. DDT was abolished and the dividends were made taxable in the hands of the investors as per their respective slab rates. It also prescribed rules for TDS.

How much tax would mutual funds collect?

TDS at the rate of 10 percent was prescribed for the dividend receipts in excess of Rs 5000 – applicable at the level of the permanent account number (PAN) of the investor. Subsequently, it was brought down by the finance minister Nirmala Sitharaman to 7.5 per cent while offering some relief to the investors, as a part of the COVID-19 package in May 2020.

When is the TDS provision applicable?

TDS is applicable to all dividend options – be they dividend payout or dividend reinvestment or even dividend transfer plans. Dividends are subject to TDS.  All equity and non-equity schemes declaring dividends will be subject to the TDS rule.

How do I avoid TDS?

If you expect your income tax liability, after factoring in all your income for the financial year, to be nil, you can submit the applicable forms. Form 15G can be used by a resident individual below 60 years of age. For resident individuals above 60, form 15H is to be used. Non-resident Indians cannot use these forms.

How do I submit these forms?

You can get these forms from the websites of mutual funds and registrar and transfer agents (RTA), and at their branch offices. You can submit the signed forms at their offices. Alternatively, you can submit the form digitally through your RTA’s website, clearly specifying the details using the OTP (one time password) method in a hassle-free manner.

Does submission of forms end the tax liability?

The fund house submits data pertaining the submission of Form 15G or Form 15H to the income tax authorities. Also, the TDS collected is paid to the government by the fund house and the details can be seen in Form 26AS of individual assessees.

When you submit these forms, you declare that you do not have income to be taxed. However, if at the end of the year you have income above the threshold limit after availing deductions, then you are supposed to pay tax as per your slab rate. You are not absolved of your tax liability just because you submitted form 15G or form 15H. You still have to file your income tax returns.

You should avoid filing false declarations. “As per provisions of Section 277 of the Act, in case the person submits any such false certificate, he shall be punishable with a penalty. In cases where the amount of tax evaded exceeds Rs 25,000 the punishment would be rigorous imprisonment for a term which shall be for a minimum six months, extendable to 7 years and a fine may be levied. For any other case, there may be rigorous imprisonment for a term which shall be for minimum of three months but may extend to two years and with fine,” points out Akhil Chandana, Associate Partner, Grant Thornton India LLP.

If you haven’t submitted these forms and the fund house has deducted tax at source, then do not lose heart, if your net income for the year does not entail tax liability. “You can file your income tax return and claim a refund,” says Chandana. The due date for filing tax returns for individuals is July 31 normally. For financial year 2020-2021, the due date for filing income tax returns will be July 31 of next year.

Balwant Jain, a Chartered Accountant, says, “Though it is easy to file income tax returns and claim refunds, ensure that you do so well before the deadline to avoid a fine.” Late filing of income tax return till December 31 attracts a fine of Rs 5,000 and filing it after December 31 but before March 31 would entail paying Rs 10,000. For income less than Rs 5 lakh, the fine is Rs 1,000 for late filing of income tax returns.