Understanding Section 194A and Forms 15G & 15H: A Complete Guide

Understanding Section 194A and Forms 15G & 15H

Understanding Section 194A and Forms 15G & 15H Managing your finances goes beyond just earning and saving — it involves effective tax planning as well. For many individuals, interest earned from fixed deposits, recurring deposits, and other savings instruments forms a significant part of their income. But did you know that interest income above a certain threshold can attract TDS (Tax Deducted at Source)? That’s where Section 194A of the Income Tax Act and the submission of Forms 15G and 15H come into play. Understanding these can save you from unnecessary deductions and optimize your tax liability.

In this blog, we’ll cover:

1. What is Section 194A?
2. What are Forms 15G and 15H?
3. How and when to submit these forms?
4. Tax benefits and consequences of incorrect declarations.

Let’s delve into the details.

1. What is Section 194A?

Understanding Section 194A and Forms 15G & 15H Section 194A of the Income Tax Act deals with the deduction of TDS on interest income other than “interest on securities.” Understanding Section 194A and Forms 15G & 15H The intent is to bring various types of interest income, such as interest from fixed deposits (FDs), recurring deposits (RDs), and other deposit schemes, under the ambit of TDS, ensuring early tax compliance.

Key Points to Understand About Section 194A:

1. Who Needs to Deduct TDS?
   • TDS under Section 194A is applicable to any entity (except an individual or HUF) paying interest. However, individuals or HUFs are required to deduct TDS if they are liable to tax audit under Section 44AB in the previous financial year.
   • Typically, banks, post offices, and financial institutions deduct TDS under this section.
2. What is the Rate of TDS?
   • The TDS rate is 10% if the payee furnishes a valid PAN.
   • If the PAN is not provided, the TDS rate goes up to 20%.
3. What is the Threshold Limit for TDS?
   • For general taxpayers (below 60 years), TDS is applicable only if the interest income exceeds ₹40,000 in a financial year.
   • For senior citizens (60 years or above), the threshold is higher at ₹50,000.
4. Due Date for Depositing TDS:
   • TDS deducted under Section 194A must be deposited to the government by the 7th of the subsequent month.
   • For the month of March, the due date is April 30th.

2. What are Forms 15G and 15H?

While Section 194A mandates TDS deduction on interest income, you can avoid it legally if your total income is below the taxable limit. Understanding Section 194A and Forms 15G & 15H This can be done by submitting Forms 15G or 15H to your bank or financial institution. These are self-declaration forms that state your total income does not exceed the basic exemption limit, making TDS deduction unnecessary.

Differences Between Form 15G and Form 15H:

Eligibility Conditions for Using Form 15G:

1. The taxpayer should be an individual, HUF, or trust.
2. Age should be below 60 years.
3. The total interest income should be below ₹2.5 lakh (for FY 2023-24).
4. Total taxable income (after deductions) should not exceed the basic exemption limit.

Eligibility Conditions for Using Form 15H:

1. The taxpayer should be an individual above 60 years.
2. Total taxable income should be below ₹3 lakh for those aged between 60 and 80 years.
3. Total taxable income should be below ₹5 lakh for those aged above 80 years.

3. How and When to Submit Forms 15G and 15H?

Procedure to Submit:

1. Obtain the Forms:
   • Forms 15G and 15H can be obtained either physically from the bank or downloaded online from the bank’s website.
2. Fill in the Details:
   • You’ll need to provide personal information, including PAN, financial details, and declarations of your income.
3. Submit to the Bank:
   • Once filled, the forms should be submitted to the bank. Nowadays, most banks also allow online submission through net banking.

When to Submit?

• It’s best to submit these forms at the beginning of the financial year (April) to ensure that no TDS is deducted during the entire year. Understanding Section 194A and Forms 15G & 15H
• If not submitted early, make sure to submit them before the interest income is credited or paid to your account.

Validity Period:

• Forms 15G and 15H are valid only for the particular financial year in which they are submitted. A fresh submission is required at the start of the new financial year.

4. Tax Benefits and Consequences of Incorrect Declaration:

Tax Benefits:

• By submitting Forms 15G and 15H, eligible taxpayers can avoid unnecessary TDS deductions.
• This is particularly beneficial for senior citizens, pensioners, and small deposit holders whose total income does not fall under the taxable bracket. Understanding Section 194A and Forms 15G & 15H

Consequences of Incorrect Declaration:

1. False Declaration Penalty:
   • Submitting a false declaration is punishable under Section 277 of the Income Tax Act, which may lead to imprisonment ranging from 3 months to 2 years and a fine. Understanding Section 194A and Forms 15G & 15H
2. Incorrect Information:
   • Understanding Section 194A and Forms 15G & 15H If you submit these forms even when your total income exceeds the exemption limit, the onus is on you to report this to the income tax department, failing which it may lead to notices, penalties, or reassessments.

Final Thoughts:

Understanding Section 194A and the purpose of Forms 15G and 15H can help you avoid unwanted tax deductions and better manage your finances. If you meet the eligibility conditions, ensure you submit these forms timely to your bank. Understanding Section 194A and Forms 15G & 15H However, always be careful to evaluate your total income correctly before submitting these declarations, as incorrect submissions can lead to serious consequences.

Tax planning is not just about reducing your liability but ensuring compliance with the law. If in doubt, it’s always wise to consult with a tax professional to make the best decisions for your financial health.

Let me know if you need a more detailed explanation on any specific point!

For More Information : https://youtu.be/ojWomW-YHH4?si=qyEBrf5xeorFSEPR