A bank or financial institution is required to deduct TDS (tax deducted at source) at 10% from the interest income you earn on your fixed deposits and remit it to the central government, if the interest income exceeds Rs.10,000 in a financial year..
TDS is tax deducted at source. It is that part of your income that is directly paid out in the form of tax by the deducting agency, like your employer or your bank, before passing on the rest of the income in your hands.
In the Union Budget 2018, the Finance Ministry had increased the interest income threshold to Rs.50,000 for senior citizens. Only on exceeding Rs.50,000 as interest income, can the bank deduct TDS for senior citizens or those 60 years of age and above, under the new Section 80TTB of Income Tax Act.
When you have more than one deposit in different branches of the same bank, then the interest income from all the FDs is added up and 10% of this cumulative value is deducted as TDS.
What if a depositor’s annual income is below taxable income bracket?
Now, if a depositor’s annual income is less than Rs.2.5 lakh a year, and Rs.3 lakh in case of senior citizens, then the depositor is liable to pay no taxes. Under those circumstances, the depositor must submit Form 15 G or 15H right at the beginning of the year to prevent TDS from getting deducted from their interest income. Failing which, the depositor will have to file for refund at the end of the year, which can be tedious.
What is Form 15G and 15H?
Form 15 G
When a depositor’s annual income is less than Rs.2.5 lakh (or Rs.3 lakh for senior citizens) and tax due is nil, then the depositor must file Form 15G or Form 15H with the bank requesting the bank to not deduct TDS on interest income from FDs exceeding Rs.40,000 or, in the case of senior citizens, Rs.50,000.
Form 15H is similar to Form 15G, except that Form 15H is exclusively for senior citizens who are 60 years and above in age.
Conditions For Form 15H
- The depositor should be 60 or above of age
- Annual income should be less than Rs.3 lakh in case of senior citizens and Rs. 5 lakh for super senior citizens.
- Should be a resident Indian.
Some examples of Form 15G/H
Mrs. Dsouza is 35 years old. Her annual income is Rs.2,35,000. The interest receipts on her FDs are Rs.50,000. What should Mrs. Dsouza do?
Mrs. Dsouza needs to submit Form 15G because her annual income is lower than Rs.2.5 lakh which is the minimum taxable income threshold. Since, her interest income is Rs.50,000, which is Rs.10,000 higher than the TDS exemption limit, the bank will deduct TDS at 10% if she does not file proof of her zero tax dues through Form 15G. So to prevent her loss of interest income by TDS deduction, she must file the form 15G before her first interest income is received.
Mr. Raina is 66 years old. His annual income is Rs.2,20,000 and his interest income is Rs. 60,000. What should Mr. Raina Do?
The minimum taxable income limit for Mr. Raina’s age group is Rs.3 lakh. Since his annual income is less than that, it means his taxable income is zero. So he should file Form 15H with his bank to prevent TDS deduction on his interest income which is higher than the exemption limit of Rs.50,000 for senior citizens.
In the above example, what if Mr. Raina’s interest income is Rs. 30,000 from his FD?
Since, his interest income is less than Rs.50,000 exceeding which, the bank comes into the picture and deducts TDS at 10%, Mr. Raina does not have to do anything, given that his annual income is also below minimum taxable income limit.
- You must submit Form 15G or Form 15H along with a valid PAN, failing which the TDS would be deducted at 20%.
- Form 15G/H has to be submitted to all the bank branches where you are receiving interest income from.
- If you have multiple FDs and interest income from even a single branch exceeds Rs.10,000 in a financial year, then you must file Form 15G/H to prevent TDS deduction.