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Form 15G & Form 15H – Everything You Need to Know to save TDS

The government of India has laid down clear rules and regulations for the protection of financial safety of non-earning sections and senior citizens of the population. If you earn less than Rs 2.5 lakhs per annum or are a senior citizen with no steady source of income, you can fill out Forms 15G and H and submit to various banks to enjoy a tax deduction of interest earned. This is the tax deduction available on fixed deposit interest on banks and company deposits.

Tax Deducted At Source

All investors need to pay a tax on the interest and returns earned. Banks and financial institution directly pay this tax to the government by deducting it before paying the interest. Thus, the name Tax Deducted at Source (TDS). While as an investor, it might seem unfair to pay tax on the interest earned. Thus, to ensure that low-income taxpayers do not get discouraged, people with income less than Rs 2.5 lakhs can avail this tax benefit.

Interest rates earned on fixed deposits are tax-free up to Rs 40,000 as per the 2019 Annual Budget for ordinary citizens and Rs 50,000 for senior citizens. You have been aware of the number for FDs you have in one branch and how much will they be earning. You can utilize an online FD Monthly Interest calculator to understand the exact maturity amounts of each FD and plan your tenors accordingly such that most of your FDs are not clubbed in the same financial year for maturity. This way, you can try and minimize the interest earned in a year.

Tax-Free Interest Income

However, you can receive tax-free interest only if you earn less than the minimum taxable threshold of Rs 2.5 lakhs. Only then can you ensure that keeping your interest within these limits will give you tax-free interest earned.

If your income is above this threshold, then you are liable to pay Tax Deducted at Source at the rate of 10% on the interest earned. It is directly deducted by the bank and reflects in your AS26 form available on the TRACES website.

When your income is below the threshold, even if you cross the interest payments limits of Rs. 40,000 or Rs. 50,000 (as a senior citizen), you can still get a tax benefit from TDS by submitting a Form 15G or Form 15 H.

Both forms have the same purpose but with minor differences.

Form 15G- Form 15G is primarily used for individuals who are under the age of 60 years. People with total income less than Rs 2.5 lakhs are eligible to fill this form the Income Tax Act. This tax benefit can also be used by Hindu Undivided Family and Trust. Any company or firm does not qualify for this benefit.

Form 15H- Form 15H is similar to Form 15G but with a difference. Form 15H is meant for senior citizens. Individuals above the age of 60 whose total income is non-taxable can use this form.

To avail facilities of TDS exemption, you must fill out and submit this form at the beginning of the fiscal year to the concerned financial institution. Failing to present it on time can cause you loss of rebate.

Thus, as an FD investor, you need to be careful to submit these forms on time. You can also find Form 15G/H and download from the respective banks or financial institution’s website.

Alternative To Low-Interest Earnings after TDS deduction

Even though you are filling out these forms and submitting them to avoid TDS, you are not earning enough on your fixed deposits. Consider company FDs like Bajaj Finance FD which pays 8.60% for a 5 year FD for an ordinary citizen and 8.95% to a senior citizen. You can easily earn a return on investment ranging from 49% to 51% with such high interest rates.

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