Indian Taxpayers Can Avoid TDS on Interest Income

Indian taxpayers can avoid Tax Deduction at Source (TDS) on interest income by submitting Form 15G or Form 15H, depending on age and income eligibility. Eligible individuals can declare their income is below the taxable limit, exempting them from TDS deductions.

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Bijay Laxmi
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Indian Taxpayers Can Avoid TDS on Interest Income

Indian Taxpayers Can Avoid TDS on Interest Income

Indian taxpayers have the option to avoid Tax Deduction at Source (TDS) on their interest income by submitting Form 15G or Form 15H, depending on their age and income eligibility. Senior citizens who are at least 60 years old during the financial year are eligible to submit Form 15H.

Why this matters: This exemption can have a significant impact on the financial planning and savings of Indian taxpayers, especially senior citizens who rely heavily on interest income. By avoiding TDS, individuals can retain more of their hard-earned money and make the most of their investments.

Form 15G and Form 15H are self-declaration forms provided by the Income Tax Department. These forms allow individuals to declare that their income is below the taxable limit, thereby seeking exemption from TDS on certain types of income. It's important to note that both forms are valid for one financial year and need to be filed every year if the individual continues to meet the eligibility criteria.

Resident individuals below 60 years of age during the financial year should fill Form 15G, while Form 15H is solely for senior citizens. Eligible individuals wanting to claim exemption from TDS deductions on FDR interest income need to submit the appropriate form every financial year.

However, there are certain precautions taxpayers must take. Form 15G/15H cannot be submitted if the total interest income for the year exceeds the basic exemption limit. The Income Tax Act states that "Form 15G/15H can be issued to those who estimate their total income on which tax is zero and total income comes after considering deductions and allowances."

Financial institutions and other organizations are required to deduct TDS while crediting interest income to an individual's account if the amount exceeds INR 40,000 (INR 50,000 in the case of senior citizens). By filing form 15G or Form 15H, individuals can declare that their income during the financial year is less than the basic exemption limit, ensuring no TDS is deducted from their income. Banks and financial institutions do not deduct TDS on saving bank accounts.

In addition to Form 15G and Form 15H, individuals can also opt for lower TDS by applying under Section 197 of the Income-Tax Act. This provision allows taxpayers to request a lower TDS rate or no TDS deduction if they expect their total tax liability for the year to be nil.

By utilizing these options, Indian taxpayers can avoid unnecessary TDS deductions on their interest income, provided they meet the eligibility criteria and follow the necessary precautions. Submitting the appropriate forms ensures that individuals retain more of their income throughout the year, rather than waiting for a refund after filing their income tax returns.

Key Takeaways

  • Submit Form 15G/15H to avoid TDS on interest income if eligible.
  • Form 15G for individuals below 60, Form 15H for senior citizens (60+).
  • Forms valid for 1 financial year, need to be filed every year.
  • Forms can't be submitted if total interest income exceeds basic exemption limit.
  • Lower TDS rate/no TDS deduction possible under Section 197 of Income-Tax Act.