Banks have to mandatorily deduct TDS on interest income if it is more than Rs 10,000 in a year. However, can this be avoided and who are eligible for this?

Have you ever wondered that even if your earnings are below the basic exemption limit, why your bank deducts TDS (Tax Deducted at Source) on fixed deposit interest? Well, the answer is that banks have to mandatorily deduct TDS on interest income if it is more than Rs 10,000 in a year. Although as per the Union Budget 2018, the limit of Rs 10,000 has now been raised to Rs 50,000 for senior citizens, however, for individual taxpayers below 60 years this limit remains the same.

Whatever be the case, can this deduction of TDS on interest income be avoided when your tax liability is NIL? “Yes, you can avoid this! Just submit Form 15G or Form 15H to your bank keeping in mind the eligibility criteria and the time limit to submit these forms and no TDS will be deducted by the bank on your interest income,” says CA Abhishek Soni, Founder, tax2win.in.

So, let’s see what are Form 15G and Form 15H, and how they can help avoid TDS on interest income:

What are Form 15G & Form 15H?

Form 15G and Form 15H are the forms which you can submit to your bank to make sure TDS is not deducted from your income if there is no tax liability on the total income earned by you. “These forms can be submitted every year. Therefore, every year you need to check whether you are eligible to fill these forms, i.e. if in any year your income is chargeable to tax, then you are not eligible,” says Soni.

What is the eligibility criteria of Form 15G/ 15H?

A. Form 15G:

To submit Form 15G, the following conditions are to be kept in mind:

1. Only individuals less than 60 years of age or HUF are eligible to submit this form.

2. Must be an Indian resident.

3. Must have Permanent Account Number (PAN).

4. Tax on total income should be NIL.

5. Total interest income on fixed deposit should be less than basic exemption limit.

B. Form 15H:

1. Only individuals aged 60 years or more are eligible to submit this form.

2. Must be an Indian resident.

3. Must have Permanent Account Number (PAN).

4. Tax on total income should be NIL.

Therefore, in case of Form 15H, an individual needs to satisfy that his tax liability on total income is nil, but the amount of interest income is not relevant in such case.

What are the consequences if Form 15G/ 15H is not submitted to bank?

If you are eligible to fill Form 15G/15H and have completely forgotten to submit it, then the bank would follow the usual practice and deduct TDS on interest income, and you will be left with the option of claiming it in your income tax return. However, once you submit the form during the year, the bank won’t deduct TDS for the remaining year.

Now, let’s try to understand this with some examples:

1. Ram, aged 25, earns the following income:

Income from Salary = Rs 50,000

Interest on Fixed Deposits = Rs 2,70,000

Deduction u/s 80C = 80,000

In this case, Total Income is Rs 2,40,000 (50,000 + 2,70,000 – 80,000). Now, since interest amount is more than basic exemption limit, hence Rahul is not eligible to submit Form 15G even if his tax liability is NIL.

2. Shyam, aged 76 years, earns the following income:

Interest on Fixed Deposits = Rs 3,20,000

In this case, total income is Rs 3,20,000. Even if interest amount is more than basic exemption limit (Rs 3,00,000 in case of senior citizens), but if his tax liability is NIL after the rebate u/s 87A, then he will be eligible to submit Form 15H.

Points to be kept in mind:

Form 15G and Form15H are not required to be submitted for saving bank interest as banks don’t deduct TDS on such interest.

“It is recommended that the Form should be submitted at the starting of year to avoid any TDS deduction. Also, don’t forget to quote your PAN number while filling Form 15G/ 15H, else the bank will deduct TDS @ 20% even after submission of Form 15G/ 15H,” informs Soni.