15G/15H or Section 197 to avoid TDS? Choice depends on income

Individuals with income below basic exemption limit should opt for the former, those exceeding this limit may go for the latter

The planning and execution of an individual’s tax strategy for the new financial year should begin in April. By submitting Form 15G or 15H, one can prevent tax deduction at source (TDS) on interest income. Individuals can also opt for lower TDS by applying under Section 197 of the Income-tax (IT) Act. “Tax is not required to be deducted from specified payments if a recipient files a self-declaration with the deductor for no deduction of tax,” says Naveen Wadhwa, vice president, research and advisory, Taxmann.

The declaration for no deduction of tax is filed by senior citizens in Form 15H and by other recipients in Form 15G. Submission of these forms can prevent TDS deductions on interest income, rent, insurance commissions, and Employees’ Provident Fund withdrawals.

Income must fall under the basic exemption limit for one to avail of this benefit. “These forms allow an assessee the leverage of not following the traditional ITR filing procedure and claiming their deduction benefits in the first instance itself,” says Devansh Jain, principal associate, PSL Advocates & Solicitors. Normally, one can claim TDS refund when filing the income-tax return for the financial year. These forms need to be submitted at the start of each financial year.

Form 15G

This form is for individuals below 60 years of age.

“The individual declares that their total income is below the taxable limit, and hence no TDS should be deducted on interest income earned,” says Amit Bansal, partner, Singhania & Co.

Individuals or Hindu Undivided Families (HUFS) who earn interest income can use this form. The total income (including interest) should be below the basic exemption limit of ~2.5 lakh per year.

“For individuals (other than senior

citizens), a 10 per cent TDS is deducted on interest income exceeding ~40,000 from bank deposits,” says Alay Razvi, partner, Accord Juris LLP.

Form 15H

Senior and super-senior citizens can submit this form. “The basic exemption limit for a senior citizen is ~5 lakh for the previous financial year. A resident senior citizen, who is 60 years or above, can furnish a declaration for non-deduction of tax, if the tax on his estimated total income, after considering the rebate under Section 87A, is nil. The maximum rebate under Section 87A will be 100 per cent up to ~12,500 in a financial year,” says Jain. For senior citizens, the TDS is 10 per cent on interest above ~50,000 from bank deposits.

The procedure

An eligible person can furnish Form 15G or 15H to the payer in writing in duplicate. “Alternatively, it can be furnished electronically after due verification through an electronic process (online verification via OTP and mobile number). The recipient should submit a declaration to the payer of income along with his PAN,” says Wadhwa.

Beware of penalties for misdeclaration

Exercise caution when submitting these forms as misdeclaration can result in penalties. “Under Section 277-A of the I-T Act, 1961, an individual found guilty of misdeclaration can face imprisonment for a term of not less than three months, extendable up to two years, along with a fine,” says Jain.

The Section 197 alternative

Instead of submitting Form 15G or 15H, individuals can also opt for a lower deduction of tax at source by applying under Section 197 of the I-T Act. “According to this provision of the I-T Act, if a taxpayer’s actual liability on taxable income is less than the TDS amount deducted by the payer, the taxpayer can apply for a certificate called Lower Deduction Certificate (LDC),” says Sandeep Bajaj, advocate, Supreme Court of India.

Bansal informs that the process involves applying to the Assessing Officer (AO) and specifying the reasons for requesting a lower deduction. The AO may then issue this certificate directing the deductor to deduct tax at a lower or nil rate. Form 15G and 15H are for those with nil tax liability on total income. Experts suggest that Section 197 is a preferable option for individuals with incomes exceeding the limits for Form 15G/15H, who aim to lower their TDS deductions. However, processing requests under Section 197 may take longer.