Form 15G and Form 15H

Background
As per the current TDS rules, if the interest income of an individual / HUF exceeds Rs 10,000 in a year, 10% tax will be deducted at source by the financial institution.
If the investor has not furnished his PAN details, the TDS rate will be higher at 20%.
However, in specific scenarios, Form 15G and 15H can be submitted to give a declaration to the bank not to deduct this tax at source. Check your eligibility to apply for TDS exemption, and if eligible, do not miss out.

What are these forms?

What is Form 15G ?

It is a declaration to be made by an individual or a person not being a company or firm claiming certain receipts of interest without deduction of tax at source. Essentially, this is applicable for non senior citizens.

What is Form 15H ?

It is a declaration to be made by an individual or a person who is of the age of 60 years or more not being a company or firm claiming certain receipts of interest without deduction of tax at source.Essentially, this is applicable for senior citizens.

Eligibility to submit Form 15G / 15H?

For Form 15G

There are two conditions to be met to be eligible to submit Form 15G:

a) The final tax liability, after including all interest received and all investments, as per the prevalent tax slab should be nil.

b) The aggregate of the interest income received / likely to be received during the financial year should not exceed the basic exemption slab applicable for the individual.

For Form 15H

There is only one conditions to be met to be eligible to submit Form 15H:

a) The final tax liability, after including all interest received and all investments, as per the prevalent tax slab should be nil.

Senior citizens have been exempted from the second condition because most retirees get the biggest chunk of their income from interest.

Example to identify Eligibility

Case 1

Let us say that you are 40 years old and have a interest income of Rs. 3,00,000 while you save Rs. 1,00,000 under Sec 80C and additional Rs. 15,000 under Section 80D.

Sol 1

Since you are not a senior citizen, we will check the eligibility for Form 15G. Let us try and apply the two conditions for Form 15G

a) Final tax liability is nil since taxable income is Rs. 3,00,000 - 1,00,000 - 15,000 = Rs. 1,85,000 which is below the basic slab of Rs. 2,00,000/-. First condition is satisfied.

b) Aggregate of interest income should not exceed the basic slab. Here, the interest income is Rs. 3,00,000 which exceeds the basic slab of Rs. 2,00,000. Second condition is not satisfied.

Answer 1

You are not eligible to submit Form 15G

Case 2

Let us say that you are 65 years old and have a interest income of Rs. 3,00,000 while you save Rs. 50,000 under Sec 80C

Sol 2

Since you are a senior citizen, we will check the eligibility for Form 15H. Let us try and apply the two conditions for Form 15H

a) Final tax liability is nil since taxable income is Rs. 3,00,000 - 50,000 = Rs. 2,50,000 which is below the basic slab of Rs. 2,50,000/- for senior citizen. First condition is satisfied.

b) There is no second condition for Form 15H.

Answer 2

You are eligible to submit Form 15H

Important Points on these forms

1. Effective from April 1, 2010 PAN is mandatory for making declaration using Form 15G & 15H.

2. Irrespective of the fact that Form15G & 15H has been filed or not, such income has to be mentioned under proper head while filing the income tax returns for the year.

3. These Forms are deposited in two copies, one of which is forwarded to the IT department.

4. These form(s) should be deposited at the beginning of each Financial year.

5. These Forms should be deposited at each and every branch where the deposit has been made and interest income is going to be accrued.

6. These Forms are not applicable for NRIs.

7. If anyone has opted for monthly interest, he should deposit the Form at the start of financial year compulsorily as the TDS could be done from the starting month itself if he fails to submit the same.

Who is worst effected?

The worst affected are investors who are not eligible to file Form 15G because their interest income is above the threshold limit even though their total taxable income is not liable to tax. One option for such people is to allow the banks to deduct the TDS. They can then reclaim the amount by filing their tax returns. This is a cumbersome process and, therefore, not worth undertaking. The second option is to split the fixed deposits across several banks and branches so that the TDS exemption limit is not breached. This is no less tedious because you will have to go to multiple locations. Besides, it increases your paperwork manifold. There may also be cases of a small tax liability which makes an investor ineligible for filing these forms. You can handle this by letting one bank deduct the TDS so that the amount takes care of your total tax liability.

However, note that the above strategies are only meant to avoid TDS, not avoid tax or file your tax return. You may be required to file your tax return if your total income before the deductions is above the basic tax exemption limit. Besides, there is a stiff penalty for furnishing incorrect information in the form just to avoid the TDS.

Summary

Check your eligibility for one of these 2 forms, and if you are eligible, please go ahead and submit the Form to every bank branch at the earliest possible in the financial year.

Cheers

Manoj Arora