All you need to know about TDS deduction on interest income and how to prevent it

ITR Filing: TDS Deduction On Interest Income & How to Avoid It - An Analysis

To Avoid Tax Deducted at Source (TDS) on incomes like rent and interest, taxpayers can submit form 15G or 15H to the relevant individual or organization, including banks, post offices, and corporate bond issuers. Form 15G is for individuals below 60, whereas 15H is for senior citizens.

Interest earned on bank deposits is a form of taxable income for all bank account holders. It's important to note that tax on interest income is to be deducted at the time of payment or credit of interest (to any account by whatever name is called), whichever is earlier, according to Section 194A. Currently, tax deducted at source (TDS) regulations applies to various payments such as salary, interest, commission, brokerage, professional fees, royalty, and more. 

However, no tax deduction is necessary if the total interest credited or paid to the payee regarding time deposit within the fiscal year does not surpass Rs 40,000. The threshold is Rs 50,000 for senior citizens, the threshold is Rs 50,000.

Taxpayers can benefit from a significant relief, which requires submitting form 15G or 15H to the relevant person or organization if their yearly taxable income falls below the tax exemption limit. By doing so they can  avoid TDS on earnings such as interest and rent. Form 15G and 15H are applicable when a taxpayer's interest income is below a specific threshold and they wish to prevent TDS deduction. Individuals under 60 years must submit Form 15G, while those who are 60 years or older must submit Form 15H.

Difference between Form 15G/15H

Form 15G/15H are both quite similar in conditions but there is one major difference - Form 15H is applicable to those individuals (Senior Citizens) who are 60 years old or more than this. And Form 15G is applicable to individuals whose age is less than 60 years. To get more clarity about it let’s look at it in a table form.

Example To Understand the Eligibility For Form 15G And Form 15H Submission

Let’s have an example to understand the eligibility criteria for filing Form 15G/15H. We have expressed below it in table form-

Important Things to Remember

• Only individuals who are residents of India are allowed to make a declaration in Form 15G or 15H.
• If the yearly interest income does not go beyond the exemption limit (which is either Rs 2,50,000, Rs 3,00,000, or Rs 5,00,000 depending on the case), the taxpayer is eligible to submit Form 15G or 15H as a declaration.
• This condition is not applicable in the case of a resident senior citizen. They can submit Form 15H even if the annual interest income likely to be paid to them exceeds the exemption limit of Rs. 2,50,000 or Rs. 5,00,000 (as applicable), as long as the tax payable on their total income after considering the rebate under section 87A is zero.
• For a taxpayer to be able to submit Form 15G or 15H, they must not have any tax payable on their total income for the year.

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