If you are meant to receive an interest income from a bank and your total annual income is likely to stay lower than the minimum threshold that qualifies for tax liability then you must intimate the bank to prevent deduction of TDS (tax deducted at source) at the time of transfer of interest income.
This can be done by submitting form 15G (or 15H if you are a senior citizen) with the bank . These forms are submitted along with the PAN (Permanent Account Number) details.
The income for which banks deduct tax at source include interest income on a term deposit.
What is form 15G/15H?
When a tax payer has to submit a form for declaration to claim incomes without deduction of tax then he must submit the form 15G.
When the same form is meant to be submitted by a senior citizen (above the age of 60 years), it is known as the form 15H.
“These are self-declaration forms that are submitted to avoid deduction of TDS by the bank,” says Deepak Aggarwal, a Delhi-based chartered accountant.
What is the need of submitting form?
To be able to understand the need to submit the form, one must first understand the process of deduction of TDS on interest income.
At the time of transfer of interest income, banks deduct 10 percent tax on interest income when interest income exceeds ₹40,000 (50,000 for senior citizens).
And in case the overall tax liability is more than 10 percent, taxpayers are supposed to pay the balance tax at the time of filing of income tax return (ITR). And when the overall tax liability turns out to be lower than the TDS, taxpayer can claim refund at the time of return filing process.
Lower tax liability
There is another provision wherein tax payer can apply for lower or nil deduction of tax at source. This application for deducting lower tax is made under section 197 of the Income Tax (I-T) Act, 1961.
To avail this benefit, tax payer must furnish an application in requisite format before the tax department.
Zero tax liability
Now, let us assume that taxpayer is not supposed to pay any tax since his total income at the end of the year falls short of the taxable income. In such a scenario, tax payer must intimate the same to the relevant bank or financial institution to prevent deduction of TDS.
However, if your total income exceeds the exemption limit after submitting form 15G or 15H, then it is advisable to withdraw form 15G.
In that scenario, the bank will start deducting TDS from the next interest payment onwards.
