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Form 15H and 15G Decoded

Typically, you can have two types of accounts with a bank viz. a Savings Account and a Fixed Deposit

Accordingly, you earn two kinds of interest income viz. savings account interest and fixed deposit interest.

Many depositors make the mistake of treating them as the same. However, contrary to common misconception, under the income tax laws the two have to be treated differently.

A. Two types of Bank Interest

Savings Account Interest: Up to Rs.10,000 is exempt from tax. In other words, you don't have to pay any tax on savings interest income up to a sum of Rs.10,000 in a year. Any amount over and above this limit is to be added to your total annual income and taxed as per your slab rate.

Fixed Deposit Interest: Every single rupee of your FD interest income is taxable. In other words, entire interest earned on all your fixed deposits is to be added to your total annual income and taxed as per your slab rate.

B. Difference between Tax Payable and Tax Deducted at Source

Many depositors also make the mistake of treating the 'total tax payable' and 'tax deducted at source (TDS)' as the same

However, contrary to common misconception, under the income tax laws the two are totally different...
... Total tax payable is the amount of tax you are liable to pay on your interest income based on your slab rate. 
... TDS, on the other hand, is a 'specified percentage' deducted by the bank as "advance tax", which may or may not be the same as your actual tax liability.


C. TDS on Bank Interest

- Banks are supposed to deduct TDS only on FD interest. No TDS is deductible on Saving A/c interest
- TDS becomes applicable when the total FD interest earned, at a particular bank branch, exceeds Rs.10,000 (Careful: This Rs.10,000 has no relation to the Rs.10,000 tax-free savings a/c interest)  
[IMP UPDATE: From FY 2015-16, this has been amended. Now, interest earned at all the branches of a bank put together will be calculated and if it exceeds Rs.10,000 TDS will apply.]
- If you have submitted your PAN No. the TDS rate is 10%. Else 20% would be deducted as TDS. 

D. What is Form 15H and 15G

This is where Form 15H and 15G come into picture.

Suppose your estimated total taxable income, including bank interest, is such that your tax liability for the year is Nil. 

However, your FD interest income is more than Rs.10,000. So you can tell your bank not to deduct any TDS by submitting a self-declaration through Form 15H [for senior citizens] / 15G [for other individuals].

Important: For others (i.e. non-Senior / non-Very Senior Citizens), there is an additional condition to become eligible to furnish Form 15G apart from having 'nil' tax liability...
... which is that the total interest income from all sources should NOT exceed the basic exemption limit

In other words if your "interest income" during the year exceeds the basic tax exemption limit [Rs.2.50 lakhs for FY 2015-16], but your tax liability is Nil, you cannot submit Form 15G. So banks will deduct TDS on your interest income. 

E. Conditions regarding furnishing Form 15G / 15H

- This facility is for resident Indians only. NRIs are not permitted to furnish Form 15G / 15H.
- It has to be submitted in duplicate
- It is valid for only one year. So if say your FD is for 5 years, you have to submit the Form at the start of each financial year.
- If, for any reason, TDS does get deducted, you can claim it back by filing IT Return

By the way, if eligible, apart from banks you can submit Form 15G / 15H self-declaration to other income payers too such as mutual fund, company FD, etc. 

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