The end of the first quarter of a financial year, which is on June 30, is the time when most depositors get first quarterly interest credited for their fixed deposits. However, this is also the time when TDS is deducted if your interest amount is above the TDS limit. If you do not take timely action to save this TDS deduction you will have to wait for more than a year to file your ITR next year and then wait for few more months to get the refund. Here is what you need to do save this TDS deduction:
The threshold interest for TDS deduction
Before going to the savings part let us understand how TDS is charged. Usually a commercial or a co-operative bank or a post office deduct 10 per cent TDS on interest from fixed deposit after interest amount goes above Rs 40,000 in a given financial year for people below 60 years of age. For senior citizens, the limit for TDS deduction goes up to Rs 50,000.
"Tax is required to be deducted under this provision only if the aggregate amount of interest credited or paid to the payee in respect of time deposit during the financial year exceeds the limit," says Naveen Wadhwa, DGM, Taxmann. So, till the time total interest amount crosses the threshold limit no TDS is deducted but once it goes above the threshold the TDS is deducted not on the amount just above the threshold but on the entire interest amount.
Reduced TDS rate of 7.5% for FY21
Due to coronavirus-led economic action there has been relaxation on the TDS amount. "The government through its "Atmanirbhar Bharat" scheme dated May 13, 2020, reduced the TDS rate under Section 194A to 7.5 per cent from 10 per cent for any payment made or accrued between May 14, 2020 and March 31, 2021," says Kapil Rana, Founder and Chairman, HostBooks. So, this year the TDS amount will be charged at a reduced rate of 7.5 per cent.
How to save TDS
If you are eligible to enjoy exemption from the TDS deduction then there is no point in letting the TDS deducted and later getting it refunded. If you are a senior citizen you are eligible for exemption if your tax liability is nil. Even if the income is above Rs 2.5 lakh but not more than Rs 5 lakh you can fill form 15H to save TDS.
"A taxpayer being a senior citizen can file Form 15H for a financial year if the tax on his estimated total income for the year, including income for which Form 15H is filed, will be nil. Also, in a case where income of the assessee being a senior citizen, who is eligible for rebate of income-tax under section 87A of the IT Act, is higher than the basic exemption limit, but his tax liability shall be nil after taking into account the rebate available to him under the said section 87A, such person can also file Form 15H," says Suresh Surana, founder, RSM India.
If you are not a senior citizen then you will have to fill form G if your total taxable income is not more than Rs 2.5 lakh. "If the estimated taxable income, which is total income (including the income from Interest under section 194A) after deducting deductions, allowed under chapter VI-A, does not exceed basic exemption limit then a person can submit Form 15G," says Rana of HostBooks.
The best time to fill the forms
You should fill the relevant forms before your interest income crosses the threshold limit. "In the normal course, it is advisable to file Form 15G/ H in the first week of April at the beginning of the financial year so that banks are aware from the start of the year that they are not required to deduct TDS. However, to mitigate the hardships of small taxpayers in the current COVID situation, the CBDT has clarified that if a person had submitted valid Forms 15G and 15H to the banks or other institutions for FY20, then these forms would be valid up to June 30, 2020. This will safeguard the small taxpayers against TDS where there is no tax liability," says Surana of RSM India.
However, if you did not file Form 15G/H last year then you need to do it as soon as possible. "All tax payers who had or had not filed the Forms in FY20 should file the Forms for the FY21 at the earliest for the remaining period of the FY21," says Surana.
You need to give self declaration by filling the forms. "Assessee can file a self-declaration for non-deduction of tax in Form 15G or Form 15H, as the case may be, under section 197A. Income-Tax Act does not prescribe any time limit for filing of such form. Thus, deductee can file declaration for nil deduction at any time. However, it is advisable to file such declaration before accrual of interest for first time during the year," says Wadhwa.
To show nil tax liability you can get a certificate from Central Board of Direct Taxes (CBDT). "The CBDT has prescribed that the application for lower or nil deduction certificate shall be filed during the period starting from February 28 of the immediately preceding financial year and ending with March 15 of the relevant financial year," says Wadhwa of Taxmann. "Assessee can file an application in Form 13 to obtain the nil or lower TDS certificate under section 197. Such form can be filed online under digital signature or through electronic verification code," he adds.