This is a ritual you do every year. You go to the bank and invest your hard earned money, in a fixed deposit. Banks currently offer an interest of 6.5-7% a year on FDs. Your bank has to compulsorily deduct TDS on interest income on FD, if it is more than Rs 10,000 a year.
Even if your income is below the basic exemption limit, banks still deduct TDS on the interest income from your FD. Is there a way you can avoid TDS on interest income from FDs?
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The Union Budget 2018-19 had brought a lot of good news for senior citizens. The interest exemption limit on interest income from bank deposits, has been raised from Rs 10,000 to Rs 50,000 a year, for senior citizens.
Unfortunately, if you are below 60 years, the interest exemption limit continues to be Rs 10,000 a year. But, there’s a way to avoid TDS on interest income from FD, if your income is below the basic exemption limit. Let’s find out how.
If you do not want the bank to deduct TDS on interest income from FD, just submit Form 15G to your bank. Senior citizens must submit Form 15H. Just submit the Form 15G (For senior citizens its Form 15H) and your bank will not deduct TDS on interest income from FD, provided your salary/income is below the basic tax exemption limit.
You must submit the Form 15G or Form 15H each year. So, check each year if you are eligible to fill these forms. If your income goes beyond the basic tax exemption limit, you are not eligible to fill these forms.
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If you are eligible to submit the Form 15G and Form 15H, and you do not do so, the bank will deduct TDS on interest income from FDs. You will have to file Income Tax Returns (ITR) to claim the TDS. Even if you submit the Form 15G and Form 15H anytime during the year, the bank won’t deduct TDS for the rest of the year.
Find this difficult to understand….Let’s try some examples….
1. Sudakar who is 27 years earns the following income.
Income from Salary = Rs 60,000 a year
Interest on FD = Rs 2,80,000 a year
Deduction under Section 80C = Rs 1,00,000 a year.
Sudakar’s total income is Rs 2,40,000 (60,000 + 2,80,000 – Section 80C deduction of Rs 1,00,000).
Now, as Sudakar’s interest income on FD (Rs 2,80,000 a year), is more than the basic exemption limit of Rs 2,50,000, he cannot submit Form 15G even though his tax liability is 0.
2. Nagaraj is 75 years and earns the following income
Interest on FD = Rs 3,10,000 a year
Nagaraj’s total income is Rs 3,10,000 as he has no other income. Even though Nagaraj’s interest income is more than the basic exemption limit of Rs 3 Lakhs in case of senior citizens, he can submit the Form 15H. This is because his tax liability is 0, after the income tax rebate under Section 87A.
You don’t have to submit Form 15G/Form 15H for savings bank interest. This is because banks don’t deduct TDS on interest income from SB accounts. Submit Form 15G/Form 15H at the start of the year, to avoid TDS on interest income.
Finally, quote PAN or the bank will deduct TDS at 20%, even if you submit Form 15G or Form 15H. Be Wise, Get Rich.
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