Fixed deposits are preferred investment options for many, as they provide a fixed interest rate and better returns with lower volatility, as compared to a standard savings account. When signing up for fixed deposits, it is important to keep tax exemptions in mind.
People who have large sums in their fixed deposits may also incur tax deductions at source. This is where Form 15G and Form 15H come into play.
What are Forms 15G and 15H?
As per Section 194A of the Income Tax Act, 1961, banks and financial institutions are instructed to deduct Tax Deducted at Source (TDS) on all interest payments that exceed Rs. 10,000 in any Financial Year. This means that any customer of the bank who receives an interest of more than Rs. 10,000, the bank will automatically deduct tax on behalf of the customer and pay it to the government.
Section 194A of the Income Tax Act also meant that people who were getting an interest amount of more than Rs. 10,000 from their fixed or recurring deposits, and were not liable to pay income tax were also being taxed. Form 15G/ 15H are for such individuals, who can furnish them for nil or lower deduction of TDS.
Additional Read: What happens if you don't renew or withdraw your fixed deposits?
Difference between Forms 15G and 15H
Both these forms fulfill the same purpose but have subtle differences, which are explained below:
Form 15G: The main point of difference between this form and 15H is that it can only be used by individuals who are below 60 years of age. These forms cannot be submitted by an NRI, and only an individual can submit them. So, the list of people who can use this are Hindu Undivided Families (HUF), trusts and bodies of individuals; companies cannot benefit from this measure.
Form 15H: This form can only be submitted by those individuals who are above 60 years of age. Another prerequisite for submission of the form (also applicable to 15G) is that the final tax on the estimated total income should be nil for the financial year.
How to make the most of Forms 15G and 15H
These forms come with a validity of one year, and should ideally be submitted to the bank at the start of the year. Submitting these forms at the very onset of the financial year ensures that a situation in which the bank has already deducted the tax before the assessee could furnish the forms does not arise.
Additional Read: Premature withdrawal of fixed deposit: How to do it
This bit is very important because if the bank has already deducted and deposited the tax with the government, then the bank will not be able to refund it. The only way to get your money back would be by filing your income tax return and claiming the TDS amount as a refund.
Since both Forms 15G and 15H are valid only for one year, you will have to again submit new forms in the next financial year to achieve reduced or nil TDS. This due diligence will make sure that you get maximum assured returns on your fixed deposit.
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