In case you’re an investor in dividend-paying investment products such as some mutual funds, you might know about Form 15G and Form 15H. These forms help such investors avoid Tax Deducted at Source (TDS) if their tax liability is expected to be zero. 

Mutual fund investors have the option to save TDS as dividends from investments are taxed in the hands of investors from April 1, 2020.

Why are these forms required?

Until March 31, 2020, dividends in the hands of investors were tax-free as mutual funds levied dividend distribution tax (DDT). This tax for equity-based schemes was 11.64% and for non-equity schemes was 29.12% for individual investors. However, after the introduction of Finance Act 2020, DDT was abolished and instead dividends were made taxable in the hands of investors according to their respective tax slabs.  

How much TDS is applicable? 

Effective April 1, 2020, the dividend income is taxable in the hands of shareholders. Accordingly, if any individual shareholder receives dividend income exceeding Rs. 5,000 in a fiscal year, the entire dividend will be subject to TDS at the rate of 7.5%. This TDS was reduced by Finance Minister Nirmala Sitharaman as part of Covid-19 relief package in May 2020. For those who do not hold a Permanent Account Number (PAN), this TDS will be 20%.  

Where to submit Form 15H, 15G

These can be downloaded from the websites of mutual funds and transfer agents and their branch offices. These can be submitted at their offices. These can also be submitted digitally through transfer agents’ websites. New forms have to be submitted in each financial year.  

Income liability needs to be nil

By submitting these forms you declare that your income tax liability is zero. However, in case your income is above the threshold after availing all the deductions then you liable to pay tax as per your slab. Filing Forms 15H and 15G does not absolve you of your tax liability, you're still required to file your tax returns.