Form 15G and 15H are self-declaration forms filed with the banks or financial institutions who deduct TDS on the interest income earned/accrued to not deduct TDS on the interest income.
As per Section 194A of the Income Tax Act, 1961, all Banks and Financial Institutions have been mandatorily instructed to deduct TDS on all Interest Payments exceeding Rs. 40,000 in any Financial Year. Thus, whenever any customer receives more than Rs. 40,000 as Interest from a bank, the Bank will have to deduct Tax on such Income arising in the hands of the customer and will directly pay this Tax to the Govt. on the behalf of the customer. From FY 2018-19 onwards, no TDS will be deducted on interest earned up to Rs 50,000 by the senior citizens. Note that the interest amount calculated for the above purpose will be from all types of deposits viz. interest earned from fixed deposits, Recurring deposits, etc. The standard rate of TDS on FD was 10% of the earned interest. However, the TDS on interest is 20% of the earned interest if the investor does not have a PAN card. For NRO deposits TDS rate is 30%. No tax is deducted for interest earned on NRE/FCNR deposits as those deposits are tax-free.
Many people have a misperception that interest on fixed deposits is calculated at the time of maturity. In realism, your bank estimates your interest income for the financial year from all the FDs you have with the bank. If you have deposits in different branches of the same bank, the bank adds deposits held in all its branches to calculate this limit. In a computerized environment, it is not difficult to find out the total interest earned by you for a particular period from various branches of the same bank. Bank shall issue a TDS Certificate in Form 16A for the TDS so deducted mentioning the details of TDS Payment with the Govt. While filing Income Tax Return, the Assessee shall furnish the details mentioned in his Form 16A which should be in accordance with the TDS reflected in Income Tax Form 26AS. The credit of TDS so deducted would be allowed to the taxpayer and adjusted against his Total tax liability for the year.
When there is no tax payable by the individual, in such cases, the bank will not deduct TDS only where the depositor submits Form 15G or 15H to claim interest income without TDS.
Rule 29C is applicable for the submission of Form 15G and Form 15H. An amendment has also been brought in this rule which says that declaration for Nil/Lower Deduction of TDS on Fixed Deposit/Recurring Deposit may be furnished in Paper Form or electronically (online) after duly verifying through an electronic process in accordance with the procedures, formats and specified standards. Resident Individual or HUF or trust or any other assessee but not a company or a firm with age less than 60 years and whose tax calculated on his/her total income can file Form 15G. However, to submit form 15G the total interest income should be less than the basic tax exemption limit of that year which is Rs.2.5 lakh for the FY 2021-22(AY 2022-23). Form 15 H can be submitted by any individuals above 60 years of age if tax calculated on their total income is nil. The basic tax exemption limit for senior citizens between the age of 60 years and 80 years is Rs 3 lakh and for senior citizens of above 80 years, it is Rs 5 lakh. Unlike the condition applicable for submission of 15 G, the senior citizen can submit Form 15 H even though their interest income on deposits exceeds the basic tax exemption limit (eg.Rs 3 lakh or Rs 5 lakh as the case may be), provided that the taxable income (after eligible deductions) is nil. Please note that benefits of Form 15G and 15H cannot be claimed by Non-residents for their NRO deposits. As per the RBI guideline dated 31st May 2013, at the time of submission of Form 15G/15H, the Banker will also issue an acknowledgment to the assessee stating the receipt of the form. Therefore, it is always recommended to collect acknowledgment for 15G/15 H submitted to the bank instead of disputing with the banker later on if tax is deducted from interest paid.
Income from interest received gets taxed as per your income slab rates. So the total interest income earned from your fixed deposits irrespective of tax deducted at source (TDS) or net interest income is to be reported under the head ‘Income from other sources’ while filing ITR.In case you are in the lowest slab, you pay less tax. However, if you are in the highest slab, you need to pay tax in addition to the tax deducted at source (TDS) by the bank. TDS deducted can be adjusted against your final tax liability. In case tax deducted is more than the actual tax payable by you or nil tax payable by you, a refund can be claimed from the income tax department while filing an IT return. Most banks deduct TDS every quarter, so remember to submit the 15G/15H at the beginning of the financial year to avoid TDS from your deposit. If you have not furnished Form 15G/Form 15H, and the banker has deducted TDS on Interest, there is no need to worry as you can always claim a TDS Refund for the TDS Deducted in excess of your Income Tax Liability. TDS deducted in excess of the Tax Payable shall be refunded to the Assessee with Interest.
Wrong information in forms 15G/ 15H can put you behind bars:
A false or wrong declaration in Form 15G attracts penalty under Section 277 of the Income Tax Act. “Prosecution includes imprisonment which may range from three months to seven years.
Section 277 of Income tax provides that “If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable,—
(i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.”