TDS, also known as Tax Deducted at Source is a direct taxation mechanism that facilitates direct tax collection from the source at the time of the income payout. The deducted TDS amount will be remitted to the Central Government. TDS is levied on a number of income avenues such as FD interest, EPF withdrawal, income generated from corporate bonds, post office deposits and rental payments.
FDs are one of the most attractive savings and investment options available in the Indian market. However, interest earned on them is taxable. This might make FDs unattractive to a lot of investors. However, you can also benefit from tax saving through FDs. Keep reading to know how you can save on taxes by saving in an FD!
How is FD Interest Taxed?
Generally, interest earned on bank and NBFC FDs are taxable according to your tax bracket. However, if your income is below the basic exemption level, you will be eligible to receive a waiver on TDS payments. You can be exempt from paying TDS by filing Form 15G or 15H, whichever is applicable for you.
Under section 194A of the Income Tax Act, if your total interest income for bank FDs is below ₹40,000 (₹50,000 for senior citizens) for a given financial year, then you will be exempt from paying any TDS. In the case of NBFC FDs, your interest income threshold will be ₹5,000 for both regular and senior citizens.
Additionally, if your total taxable income is below ₹2,50,000 for a financial year, you will be exempt from paying TDS. If you’re over the age of 60 but under the age of 80, income up to ₹3,00,000 is exempted from tax. For individuals over the age of 80 years, there is no tax liability for income of up to ₹5,00,000. Senior citizens looking to make additional tax saving can also invest into a Senior Citizen Saving Scheme.
However, if your interest income is above this threshold, your TDS rate will be 10% if you have registered your PAN card with the bank or financier. However, if you haven’t registered your PAN with your bank or financier, your TDS rate will be 20%.
How to Save on TDS with Form 15G and 15H
According to Section 197A of the Income Tax Act, 1961, Indian residents whose estimated total income for the previous year is below the basic exemption level, then they will be eligible to avoid any tax deduction at source on FD interest income, securities, dividends and other interest without having to file for taxes.
The facility of claiming payments of interest on securities, dividends, etc., under section 197A is available only to Indian residents.
Forms 15G and 15H are self-declaration forms that you can submit to your bank or financier to help you avoid paying TDS if your income is below the basic exemption level. Forms 15G and 15H are proof that your income is below the taxable limit and is, therefore exempt from taxation.
Form 15G under sub-sections (1) and (1A) of section 197A of the Income Tax Act of 1961 can be submitted by an HUF, trust or resident Indians under the age of 60, provided that your income level is below the basic exemption level.
Form 15H is a self-declaration form under sub-section (1C) of section 197A of the Income Tax Act, 1961. Form 15H is very similar to its counterpart Form 15G, except that Form 15H can only be filed by resident Indians over the age of 65.
Apart from filing Forms 15G and 15H for interest income on FDs, you can also file Forms 15G and 15H to avoid tax liability for EPF withdrawal, income generated from corporate bonds, post office deposits and rental payments.
Points to Keep in Mind While Filing for Form 15G and 15H
Here are some things that you need to keep in mind before filing for Form 15G or 15H:
- You will not be eligible to file for Form 15G if your interest income for any financial year exceeds the income tax threshold, even if your total taxable income is lower
- You can file Form 15G and 15H only if you’re Indian residents
- Your PAN must be linked with your bank account to file Form 15G or 15H
- You cannot submit Form 15G even if your tax on total income is nil, if your interest income is beyond the basic exemption limit
- Form 15H can be submitted by senior citizens even if the interest income is more than basic tax exemption limit , provided that the taxable income (after deductions) is below the exemption limit
Forms 15G and 15H are self-declaration forms that can be submitted if your income level is below the basic exemption levels. By submitting these forms, you will be exempt from paying TDS. Form 15G can be submitted by Indian residents, HUF and trusts whereas Form 15H can be filed only by Indian residents over the age of 65. Apart from filing Forms 15H and 15G to avail tax saving on fixed deposits, you may also consider filing Forms 15H and 15G on EPF withdrawal, income generated from corporate bonds, post office deposits and rental payments.