Importance of Form 15G and Form 15H to avoid TDS on Fixed Deposit, with difference between 15G and 15 H

Banks or Post Office deduct TDS when your interest earning exceeds Rs 10,000 in a year. Even banks clubs all of your FD interest with it while calculating the TDS liability. Banks are not doing this on its own, rather they follow income tax rules. This tax rule can be a big problem to those who relies heavily on fixed deposits.

What is Form 15G and Form 15H

Form 15G / Form 15H is a declaration that tells to your bank that your total income is not liable to tax, thus they should not deduct the TDS from the interest earning. Banks keep this form and oblige the depositor by not deducting the TDS. Banks don’t verify your claim, however, you must give the PAN with the form 15G/15H. The income tax department tracks all of your income through the PAN.

Form 15G vs Form 15H

Form 15G and Form  15H are the similar forms and serves the same purpose. These are used for the different class of people.

Form 15H is for senior citizens, those who are 60 years or older; while Form 15G is for everybody else.

How Much TDS Can you Avoid

The form 15G/15H is used to avoid the TDS collection by the banks. Banks deducts 10% of your interest income in the form of TDS. This TDS deduction can be 20% if you have not submitted the PAN. However, banks do not deduct TDS if your interest income is less than Rs 10,000.

Validity of Form 15G/15H

Form 15G/ Form 15H, which declares your non-taxability status, is valid only for one financial year. By using these forms you can avoid TDS only for a year. If you want to avoid the TDS for another financial year, submit the form 15G/15H again to the bank.

When To Submit the Form

You must submit the form 15G or form 15H at the beginning of the financial year. The banks generally accept these form till the June end of a year. Thus, you must submit the form on time to avoid the TDS, otherwise, the bank would deduct the 10% tax from your interest income.

How To Get Form 15G and Form 15H

Banks generally provide these forms to its customers. You can go directly to the bank and ask form 15/15H. Fill the form there and submit it to them.You can also download the form 15G and form 15H from the websites of the bank. You can also download this form from the income tax India website.

Eligibility For Submitting Form 15G

1. You are an individual or HUF
2. Must be a Resident Indian
3. You should be less than 60 years old
4. Your anticipated income tax should be ‘Nil’.
5. The total interest income should be less than the ‘taxfree income’ limit. (Limit is Rs 2.5lakhs for FY 2014-15, FY 2015-16 and FY 2016-17)

Eligibility For Submitting Form 15H

1. You are an individual
2. Must be a Resident Indian
3. You are 60 years old or will be 60 years old during the year for which you are submitting the form
4. Tax calculated on your Total Income is nil
5. The total interest income should be less than the ‘tax free income’ limit for the senior citizens.

You can check the income tax liability using the income tax calculator.

What if you Forgot to submit Form 15G / 15H

It is common to forget the submission of form 15G/form 15H. In such situation, the bank would deduct the TDS from your interest income. If it happens, you can take these two steps.

1.Submit form 15G/15H immediately

The banks deduct TDS quarterly, so you can stop this deduction for remaining quarters. So, submit the form as soon as you realize the mistake.

2. Claim Refund While Filing Income Tax Return

Excess tax payment can be claimed through the income tax return. Thus, the TDS deducted by the bank should be mentioned as the tax payments in your income tax return. You must take care of it while filing the tax return. You would get the income tax refund after few months.

The Applicability of Form 15G and Form 15H

Till now, I have told you that the form 15G and Form 15H can be used to avoid the TDS of bank interest. However, this form can be also used to avoid TDS on other similar incomes.

TDS on EPF withdrawal 

The EPF withdrawal amount is considered the tax exempt unless you withdraw it without completing the 5 years of service. Hence, you have to pay tax if you withdraw EPF before completing 5 continuous years in the service. The income tax department has instructed the EPFO to deduct TDS while paying the PF balance of such employee. However, the PF amount should be more than Rs 50,000. This TDS can be avoided by submitting the form 15G along with the EPF withdrawal application.

TDS on income from corporate bonds

The income from corporate bonds is treated like the bank interest. Therefore, the rule of TDS is applicable on it as well. TDS is deducted if your income from corporate bonds exceeds Rs 5,000. You can submit Form 15G/Form15H to the bond issuer. It will ensure the non-deduction of TDS.

TDS on post office deposits 

The post offices also deduct TDS on interest income similar to the banks. However, Only those post offices follow the rule of TDS which have been computerized. You can submit the form 15/15h in such post offices to avoid the TDS.

TDS on rent

TDS is deducted on rent if total rental income in a year exceeds Rs 1.8 lakhs. If the tax on your total income is nil, you can submit Form 15G/Form 15H to request the tenant to not deduct TDS. This rule is applicable from 1 st June 2016

Important Points About Form 15G/Form 15H

• Banks can’t Deduct TDS on saving account interest. Hence, you are not required to submit the form 15G or Form 15H to avoid the TDS.
• In the fixed deposits, which pay interest at the end of the duration, The TDS is deducted quarterly. The TDS is Deducted on Accrued interest. Thus you have to submit form 15/15H every financial year.
• An NRI, foreigner or company can’t submit the form 15G/15H to avoid the TDS.

Don’t misuse the Form 15G and Form 15H

You may be tempted to submit the form 15G /15H to avoid the tax but you should use it only if your tax liability is NIL. The wrong submission of form 15G and Form 15H can result in penal action. The wrong declaration in Form 15G attracts penalty under Section 277 of the Income Tax Act.

According to the rules, you can be prosecuted to imprisonment  from three months to two years, and a fine. The term can be extended to seven years and fine, where tax sought to be evaded exceeds `25 lakh,”