Avoid TDS : Form 15G or Form 15H

When you open a fixed deposit with bank then you are lending money to the bank and it pays you interest. Applicable interest rates will be given as on the date of receipt of the funds by the bank and is fixed for the specified duration. Interest that is earned on fixed deposits is taxable in the hands of the depositor.  Tax or TDS is deducted by the bank, if the aggregate interest income from fixed deposits that you are likely to earn for all your deposits held in a branch is greater than Rs 10,000 in a financial year. In our article Fixed Deposits and Tax we looked at Taxation aspect of Fixed Deposits. We saw that we can avoid getting TDS cut(not avoid paying tax though Cry ) by Distributing FD investment, Timing the FD,By Submitting Form 15G/15H. 

The conditions under which Form 15G and 15H may be filed are similar yet with a significant difference.  Each taxpayer needs to fully understand the specified conditions and ascertain whether he or she is eligible for filing the relevant form. Filing the form without being eligible to do so is illegal and will invite payment of interest on the tax payable and also a penalty. This article is about explaining the difference.

Income Tax Act

If you believe that your total interest income for the year will not fall within overall taxable limits, you should inform the Bank not to deduct TDS on deposits. You can do this by submitting a form as per the provisions of the Section 197A of Income Tax Act. Quoting fromSection 197A

The Finance Act, 1982 has inserted a new section 197A with effect from June 1, 1982. The section enables an individual who is resident in India and whose estimated total income of the previous year is less than the minimum liable to income-tax to receive interest on securities, dividends and other interest without deduction of tax at source under sections 193, 194 and 194A of the Act on furnishing a declaration, in duplicate, in the prescribed form and verified in the prescribed manner. Rule 29C and Form Nos. 15F, 15G and 15H have been inserted in the Income-tax Rules, 1962 by the Income-tax (Fifth Amendment) Rules, 1982 prescribing the forms for the purposes of section 197A and laying down the procedure for furnishing the declaration form.

The forms required for different categories have been listed below:

 Category of Tax Payer Income Tax Section  Form New Forms
Individual:Senior Citizen Sub-section (1C) of section 197A  15H (pdf) Form15H (pdf)
Individual:Non senior Citizen Sub-sections (1) and (1A) of section 197A  15G(pdf) Form15G (pdf)
Trusts/SocietiesAvailable from Assessing Officer  15AASample form(pdf)

Rule 29C of Income Tax Rules offers individual taxpayers the facility of furnishing Form 15G or 15H, as the case may be, requesting the payer of income not to deduct any tax. These forms have to be filed in duplicate and once the bank or the post office takes them on record, the entire interest is paid to the investor without any tax deduction. Important points that one needs to remember is

  • Fresh forms are required to be filed each year. As incomes of investors may differ from year to year, the eligibility for furnishing the forms has to be ascertained every year.
  • Secondly, for optimum benefit, these forms need to be furnished at the beginning of the fiscal such that the entire amount of interest escapes TDS. If the form is filed during the year, the tax already deducted cannot be adjusted against future tax deductions.
  • This form should be submitted to all the deductors to whom you advanced a loan. For example you have deposit in three SBI bank branches with interest of or more Rs.10,000 each. You must submit the forms to each branch.
  • You need to submit forms if interest on loan ,advance, debentures , bonds or say Interest income other then interest on bank exceeds Rs 5000.

Difference between forms 15G and 15H

Form 15H: Declaration under sub-section (1C) of section 197A of the Income-tax Act, 1961, to be made by an individual :

  • Who is of the age of sixty-five years or more (60 years from 1st July, 2012) claiming certain receipts without deduction of tax.
  • Estimated tax for the previous assessment year should be nil. That means he did not pay any tax for the previous year because his income is not coming under the taxable limit.

Form 15G: Declaration under sub-sections (1) and (1A) of section 197A of the Income-tax Act, 1961, to be made by an individual or a person (not being a company or a firm) claiming certain receipts without deduction of tax of tax.

  • Form 15G can be submitted by Individual below the age of 65 years (Age limit reduced to 60 Years from from 1st July, 2012)).
  • The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be nil.
  • The aggregate of the interest etc. received during the financial year should not exceed the basic exemption slab which for financial year 2011-12 or Assessment Year 2012-13 is Rs1,80,000 for men, Rs1,90,000 for women, Rs 2,50,000 for Senior citizens,(60-80 years), Rs 5,00,000 for citizens above 80 years. Please note that these exemption limits keep on changing. For financial year 2012-13 or Assessment Year 2013-14 exemption is Rs 2,00,ooo for men and women and  Rs 2,50,000 for Senior citizens,(60-80 years), Rs 5,00,000 for citizens above 80 years.Income Tax rates Since AY 1992-1993 has all the income slabs and exemptions since Assessment Year 1992-193.

Quoting from Tax expert Sandeep Shanbhag in  DNA:Who is eligible for filing forms 15G, 15H and how to save TDS(Sep 2011) To further understand these provisions, let’s take the example of Mr Shah, who is 55 years old. Shah’s total income is Rs 2,90,000, of which Rs1,90,000 is earned by way of interest from bank deposits. Shah also invests 1,00,000 under Section 80C and pays a medical insurance premium of Rs15,000. Is Shah eligible to furnish Form 15G?This can be ascertained by finding out if he satisfies both the above conditions.

  • The first condition is that Shah’s final tax liability should be nil. Though Shah’s gross income is Rs2,80,000 lakh, on account of his Section 80C and Section 80D deductions of Rs1,00,000 and Rs15,000 respectively, the net income falls to Rs1,75,000 lakh and consequently he is not liable to pay any tax. Therefore, Shah satisfies the first condition. 
  • However, we find that since his interest income of Rs1,90,000 is more than the basic exemption limit of Rs1,80,000. Shah doesn’t satisfy the second condition and hence he is not eligible to furnish Form 15G to the interest paying organisation.

On the other hand Form 15H imposes just the first condition, in that, the final tax on the investor’s estimated total income computed as per the provisions of the Income Tax Act should be nil. The second condition imposed by Form 15G is not applicable in the case of Form 15H.

For example, say Mr. Mehta, 68 years old, has a total income of Rs 3,00,000, out of which Rs45,000 is earned from the senior citizens saving scheme and the rest from bank deposits. He invests Rs 50,000 in PPF. Now, is he eligible to furnish Form 15H?

As pointed out earlier, all Mehta has to do is to ascertain his final tax liability. It doesn’t matter what amount he receives from which source; this information is irrelevant for Form 15H. We find that Mehta’s net income works out to Rs2,50,000 (Rs3,00,000 – Rs50,000). As the basic exemption limit for Mehta is also Rs2,50,000 (on account of him being a senior citizen), his net tax liability is nil and hence he is indeed eligible to submit Form 15H.

So difference between Forms 15G and 15H is that

  • Form 15G is meant for non-senior citizens whereas Form 15H is meant for senior citizens only.
  • The aggregate of the interest etc. received during the financial year should not exceed the basic exemption slab for Form 15G while no such condition exists for Form 15H.

The Income Tax department has been modified the Form 15H and Form 15G as per amended notification No. 11/2013 [F.NO.142/31/2012-SO(TPL)]/SO 410(E) Dated 19.02.13.  The only major change in these forms, compared to the earlier versions, is the addition of a column to mention the total estimated income from all sources, including the income for which exemption from TDS is requested. The columns are also organised better. Now there is not much difference between Form 15G and 15H. (Updated on 2 Apr 2013)

These differences are highlighted in the images from the forms below. 15H is a simple 2 page form while 15G is 3 page form with various schedules for declaring income from different sources. 

Penalty in filling wrong form

Penalty

Penalty

Myths & Facts about Form 15G & Form 15H

Quoting from caclubindia:What is Form 15G and Form 15H

Sl. No. Myth Fact
1 Anybody who wishes to avoid tax deduction can make use of Form 15G/15H Only persons with income below taxable limits and Nil Tax liability can only make use of this form.
2 Once declaration is given in Form 15G/Form 15H, there is no need to declare this income in return of Income. Irrespective of the fact whether the Form is used or not, the respective income should be compulsorily declared in return of income.
3 Once declaration is given in Form 15G/Form 15H, there is no need to pay tax on the same. As per the provisions, only persons with NIL tax liability only can give these forms. But if there is a tax liability, they have to necessarily pay the requisite tax. On the other hand, by payment of tax they run the risk of giving a wrong declaration. Hence before giving Form 15G/15H, please be doubly careful.
4 Form 15G & 15H are submitted only to the banks/Financial Institutions/Payer. This is partly correct. The person who receives the Form 15G/15H is required to submit one copy of the Form to the Commissioner of Income-tax . Hence the information is passed on the Income-tax department and the Income-tax Department can make further enquiries on the same.
5 Submission of Form 15G/15H once is sufficient. No. These forms shall be submitted every Financial year at the beginning of the Financial year.
6 It is enough that irrespective of the fact that deposits are held in different branches, a single Form is sufficient. No. These forms should be submitted to each and every branch where you hold the deposits. For example, if you hold deposits in 3 different branches of State Bank ofIndia, this declaration shall be given for each branch separately.
7 Since my Income is below taxable limits and tax is NIL , I do not have to submit the PAN details with the declaration No. Every person giving declaration using Form 15G/15H shall compulsorily provide the PAN details along with the declaration irrespective of their Income/Tax status. Otherwise tax will be deducted @ 20% on the Interest (w.e.f 01/04/2010)
8 Form 15G/15H can be used for not deducting TDS for all types of payments (viz.,) Contract payments, Professional fees, rent,etc., These forms can be used only for payments in the nature of Interest of Securities, Dividend, Interest other than Interest on Securities (Bank/Company Deposits) , NSS & Interest on Units. For other types of payments, these forms cannot be used.

References:  TaxGuru:Download, know, FAQ on Form 15G & 15H (Apr 2012), DNA:Who is eligible for filing forms 15G, 15H and how to save TDS(Sep 2011)YahooFinance:Minimising TDS on your fixed deposit  (Apr 2012), JagoInvestor:What is Form 15G and Form 15H,(Jun 2011)

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The conditions under which Form 15G and 15H may be filed are similar yet with a significant difference. Hope we have been able to clarify the difference.

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