Why wait for refund? Avoid tax at source

Tax deducted at source (TDS) is applicable to any interest above Rs 10,000 from investment such as bank fixed deposits and Senior Citizens Savings Scheme (SCSS).

TDS is in fact tax paid in advance and credit for this can be claimed while filing the return. However, for self employed, the person needs to reduce TDS from the final tax liability.

This process is cumbersome, especially for a person who is not liable to file a tax return.

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Let's examine the ways and means to prevent income from being subject to the TDS to avoid hassles later.

Rule 29C of Income Tax Rules offers taxpayers the facility to furnish Form 15G or 15H, a request to the payer of income not to deduct any tax.

Two copies of these forms have to be filed and once the bank or the post office takes these on record, the entire interest is paid to the investor without any tax deduction.

Which form, when

Not everyone can fill up this form and avoid tax. 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.

Form 15H is meant only for senior citizens and Form 15G is not for senior citizens, everyone else can use this form.

To be eligible to furnish Form 15G, the investor needs to fulfil two conditions:

• The final tax on his estimated total income should be nil, and,
• The aggregate of the interest, etc received during the financial year should not exceed the basic exemption slab, of Rs 1.6 lakh for men and Rs 1.9 for women.

If both conditions are satisfied, Form 15G may be furnished to the bank or the post office and the entire interest income received without tax deduction.

Take the example of Mr Shah, 60. His total income is Rs 2.75 lakh, of which Rs 1.75 lakh is earned by way of interest from bank deposits. Shah also invests Rs 1 lakh under Sec 80C and pays a medical insurance premium of Rs 15,000. Is he eligible to furnish Form 15G? This can be ascertained by finding out if he satisfies both the above conditions.

The first is that Shah's final tax liability should be nil. Though his annual gross income is Rs 2.75 lakh, on account of his Sec. 80C and Sec 80D deductions of Rs 1 lakh and Rs 15,000 respectively, the net income falls to Rs 1.6 lakh.

He is, therefore, not liable to pay tax. Mr Shah satisfies the first condition. However, his interest income of Rs 1.75 lakh is more than the basic exemption limit of Rs 1.6 lakh. He doesn't satisfy the second condition and, hence, is ineligible.

Form 15H imposes just one condition the final tax on the investor's estimated total income, computed in line with the Income Tax Act, should be nil. The second condition imposed by Form 15G is not applicable.

Suppose Mr Mehta, 68, has a total income of Rs 3 lakh, of which Rs 45,000 is earned from the SCSS and the rest from bank deposits. He invests Rs 60,000 in PPF. Is he eligible to furnish Form 15H?

All he has to do is to ascertain his final tax liability. It doesn't matter what amount he receives from which source; this is irrelevant for Form 15H.

We find Mehta's net annual income works out to Rs 2.4 lakh (Rs 3 lakh less Rs 60,000). As the basic exemption limit for Mr Mehta is also Rs 2.4 lakh (being a senior citizen), his net tax liability is nil and, hence, he is eligible to give in Form 15H.

Do it early

As incomes of investors may differ every year, you need to check whether you are eligible. Furnish these at the beginning of the financial year to save the entire TDS.

If the form is filed during the year, the tax already deducted cannot be adjusted against future tax deductions.

The writer is director, Wonderland Consultants.