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Are You Eligible To Furnish Form 15G / 15H?

(Some people are unaware but) every rupee of interest earned on fixed deposits and recurring deposits has to be included in your total income for the year. Accordingly, you are liable to pay tax on every rupee of interest income as per your marginal income tax slab rate. There is NIL exemption in this regards.

Exception: For Senior Citizens ONLY, the interest income from Fixed Deposits and Recurring Deposits is not taxable up to Rs.50,000 with effect from next financial year i.e. 2018-19.

Important: The above tax provision is for interest on FDs / RDs ONLY. Interest earned on Savings Account is taxed DIFFERENTLY. Up to Rs.10,000 of interest on Savings Account is exempted from tax... for all taxpayers. Amount over and above this limit is to be added to your total annual income and taxed as per your slab rate. 

[Note : Senior Citizens can claim only one benefit... either up to Rs.10,000 Savings Account interest or up to Rs.50,000 Fixed / Recurring Deposit interest.]

In this regards, the Income Tax Act also stipulates that banks have to deduct tax at source (known as TDS) on the Fixed Deposit / Recurring Deposit interest... if the total FD / RD interest earned (for all branches of a particular bank put together) during a financial year exceeds Rs.10,000 (or Rs.50,000 in case of Senior Citizens).

The rate of tax deducted at source is
- 10% if you have submitted your PAN
- 20% if PAN has not been submitted.

(By the way, TDS is NOT APPLICABLE on Saving A/c interest.)

Here, we come to a common situation:

What if your interest income from fixed / recurring deposits is more than Rs.10,000 (or Rs.50,000 for Senior Citizens), but on overall basis you are NOT LIABLE to pay any tax for the given financial year?

Banks would, in the normal course, deduct tax at source. You would have to then file returns and claim a refund. All this would cause needless inconvenience to everyone involved.

To avoid this unnecessary trouble, Income Tax Act also has the provision of you informing your bank(s) not to deducted TDS on your FD / RD interest — as a self-declaration via the commonly known Form 15G / 15H.

The question now arises:

Under what conditions are your eligible to furnish Form 15G / 15H?

form-15g-15h
Fine print on the Income Tax provisions for furnishing Form 15G / 15H.

Form 15G : For depositors below the age of 60
Your FD / RD interest earnings exceed Rs.10,000.

Yet, you can ask your bank not to deduct tax on your fixed / recurring deposit interest income PROVIDED 
a. your tax liability on the total estimated income, during the year, would be NIL;
PLUS
b. your total "interest income" during the year will NOT exceed the basic tax exemption limit (presently Rs.2.50 lakhs for FY 2018-19)

This means that your total taxable income including the FD / RD interest BUT BEFORE considering deductions u/s 80C is less than the basic exemption limit of Rs.2.50 lakhs.
PLUS
Total interest income during the year is ALSO less than the basic exemption limit of Rs.2.50 lakhs.

In other words, if your interest income is more than Rs.2.50 but your tax liability is Nil (due to various tax deductions), you are not eligible to furnish Form 15G. Accordingly, banks will have to deduct TDS, which you will have to claim as refund in your income tax returns.

Form 15H : For senior or very senior citizen depositors
Your FD / RD interest earnings exceed Rs.50,000.

Yet, you can ask your bank not to deduct tax on your fixed deposit / recurring deposit interest income PROVIDED your tax liability on the total estimated income, during the year, would be NIL.

This means that your total taxable income including the FD / RD interest BUT BEFORE considering deductions u/s 80C is less than the basic exemption limit (Rs.3 lakhs for senior citizens age 60-79; Rs.5 lakhs for very senior citizens age 80 or more).

A couple of more important provisions regarding Form 15G / 15H:
- This facility is only for the resident Indians. NRIs are not permitted to furnish Form 15G / 15H.
- It is valid for only one year. So, if say your FD / RD is for 5 years, you will have to submit the Form at the start of each financial year.

We are close to the beginning of the new Financial Year of 2018-19. So make sure that, if eligible, you submit your Form 15G / 15H in April itself. If the TDS gets deducted while your tax liability is zero, you will have to go through the hassles of filing the income tax returns to recover your money.

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