How to become eligible for lower deduction of TDS

15G/H for lower deduction of TDS on Interest Income

When can the bank deduct tax at source? 

Before I explain as to who can submit form no. 15 G and who can submit 15 H, let us first understand when bank deducts tax on the interest payable. The bank will deduct tax at source once the amount of interest to be credited in respect of all the fixed deposits taken together exceeds Rs. 10,000 in a financial year. This limit of Rs. 10,000 is applicable for each branch of a bank and not for all the branches of a bank taken together. So each branch of the bank will see whether the interest for the whole year on all the FDs exceed the threshold of Rs. 10,000. One interesting point to be noted here, which many people are not aware, is that banks are not required to deduct any TDS on interest credited on your savings bank account even the amount of interest may be very substantial. Please note that in case of fixed deposits made for longer duration where the interest will be paid to you only on maturity, the bank will deduct tax at source on the interest accrued for the year even though no interest in fact has been paid to you. 

Who can submit form No. 15G? 

First and foremost only a person who is resident in India can submit form No. 15G. So an NRI cannot submit this form.  Any person other than a Company can submit form No. 15 G. So any Individual and HUF can submit form No. 15G. However it is not that every Individual or HUF can submit form No. 15G. Only the individual or HUF, whose tax on the estimated income for the year is nil and the amount of interest income from all the sources does not exceed the minimum exemption limit, can submit this form. So for being eligible for you to submit this form, you need to satisfy both the above conditions. In a situation where due to various deductions the tax payable on total income may be nil but if the total amount of interest income is expected to exceed Rs. 2 lacs you cannot submit this form. 

Who can submit form No. 15H?

 Any resident Individual who is above sixty years of age or completes sixty years during the financial year can submit form No. 15H provided his tax liability on the basis of his estimated income is nil for the financial year though the total amount of interest from all sources may exceed Rs. 2.50 lacs, the minimum amount liable for tax. So only senior citizens can submit this form.

 What precautions to be taken while submitting form no. 15G and 15H?

 Please ensure to submit your PAN details to the bank while submitting the form No. 15G or 15 H. In case you fail to provide your PAN number to the bank, the bank will deduct TDS @ 20 percent against the applicable rate of 10 percent even if you have submitted form no. 15G and 15H. I would advise you to submit a copy of your PAN card by way of separate letter and obtain written acknowledgement for the same. Please obtain acknowledgement for form no. 15 G or 15H while submitting it. So it is advisable to get the form submitted personally rather than sending it through post so as to ensure proper acknowledgement.

 What if the bank has already deducted tax before submission of the form? 

The form no. 15G or 15H as the case may be, should be submitted at the beginning of the year so as to avoid a situation where bank has already deducted the tax before you submit the form. However in case the bank deducts the tax in spite of you having submitted the form or before you actually submit the same, the bank will not refund the tax already deducted, as the bank would have already deposited the tax with the government. In such a situation the only option available with you is to file your income tax return and claim the amount of TDS a refund.

New Process of form 15G/H notified

We are pleased to release a Tax Alert which summarizes Notification No. 76/2015/F. No.133/ 50/ 2015 -TPL dated 29 September 2015 issued by the Central Board of Direct Taxes (CBDT) for change in procedure for furnishing Nil withholding declarations (declarations) by payees in Form 15G/H.

Under the existing procedure, payees need to furnish such declarations to payers in paper format, in duplicate, and the payers are required to furnish one copy thereof (also in paper format) to the Tax Authority  within seven days from end of the month in which such declarations are received.

Under the new procedure effective from 1 October 2015, payees have the option to furnish such declarations in paper format or electronic format. The payer needs to assign a Unique Identification Number (UIN) to each declaration and include the information of UIN in quarterly withholding statements which are usually furnished in electronic form. The new procedure dispenses physical furnishing of copies of declarations to the Tax Authority on a monthly basis which will now form part of reporting in the quarterly withholding statements. However, the new procedure obliges the payers   to preserve the declarations for a period of seven years from the end of the financial year in which declarations are received and make them available to the Tax Authority on requisition.

The new procedure considerably simplifies the procedure of receipt of declarations and furnishing of information thereof to the Tax Authority.

The new procedure is a further step by the Government in improving “ease of doing business” and harnessing technology to reduce cost of compliance and ease compliance burden for all stakeholders.

The payers will need to modify their systems for acceptance of declarations in electronic form, allotment of UIN and furnishing of information to the Tax Authority as per procedure, format and standards to be prescribed by the Tax Authority in due course.

Procedure for certificate of lower TDS under section 197 in form 13
For applying lower TDS certificate to the TD department, following documents are required to be submitted:

1.   Covering letter disclosing nature of business of the company, reason for company should get lower TDS certificate and also details of the party with their correct address & TAN.

2.   New Form 13

3.   Estimated financials & computation of Total Income

4.   Audited financials for the last 3 Years

5.   Tax Audit Report of the Last 3 Years

6.   Income tax return acknowledgment of last 3 Years

7.   E TDS return acknowledgment for last 2 years of all the 4 quarters.

8.   In case of any short payment of TDS in last 3 years, proof of the payment of TDS.

9.   Copy of application & certificate obtained for earlier years.

  • After submitting the aforesaid application to the TDS department, the AO will review your documents and they may ask further queries & documents to satisfy that your company is eligible for getting the lower TDS certificate.

  • It must be noted that AO is not bound to issue TDS certificate, once the application had been filed. The AO issue the certificate based on the merit on case to case basis.

  • You must provide the correct TAN of all the parties for whom you want the TDS certificate as now a days, department are issuing only system generated certificate based on the TAN.

  • Further, from April 1, 2011 department are not issuing nil TDS certificate to anyone. Hence, you must apply only for lower TDS certificate only and must mention the lower rate as required.