All About TDS On Interest Income & How To Prevent TDS On Interest Income.
September 3, 2008 by taxworry · 11 Comments
What are provisions under I T Act which prescribes for TDS on interest?
Section 193 and 194A are tow section which prescribes for TDS on interest . Section 193 is for “TDS on interest on securities” and sec. 194A is for “TDS on interest other than interest on securities”
What is the meaning of interest for the purpose of TDS?
As per section 2(28) of the I T Act, interest is defines as under:
(28A) interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;
As per section 2(28B ) of the I T Act,interest on securities means
(28B) interest on securities means,
(i) interest on any security of the Central Government or a State Government ;
(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act ;
Therefore, almost all kinds of interest chargeable to tax is under TDS liability.
What is the basic exemption limit upto which no TDS is made?
The basic exemption in case of interest on securities paid by Government ,State government, corporation, RBI etc who deduct tax u/s 193 is RS 2,500 of aggregate interest paid or credited in a year.
In case of interest other than interest on securities (covered u/s 194A ) , the basic exemption is Rs 5000 in a year. However, in case of Banks or Co-operative societies or deposits with Indian publicly held companies , the limit of RS 5,000 is counted branch wise.
When No Tax is required to be deducted?
When interest is paid or credited to
- A banking company
- A cooperative society engaged in the banking operation
- Financial corporation setup by Central , State
- LIC, UTI or any insurance company or co-operative society
- Any institution or body notified for non deduction of tax at source.
- partner by Firm on partner’s capital.
- A member of cooperative society where payer is cooperative society.
- Interest in NSC,KVP or Indira Vikas Party
- A depositor with primary agricultural society or cooperative for land mortgage.
- Any interest paid on Refund from Income tax department or under Direct Tax laws.
- Interest credited to NRE Account.
- Interest on recurring deposits or savings account with banks or cooperative society.
- Any interest paid on compensation amount awarded by Motor Vehicles Claims Tribunal where aggregate of interest does not exceed Rs 50,000.
- Any interest paid by infrastructure capital company or fund or a public sector company on Zero coupon bond issued after 1-6-2005
- In case declaration filed in form 15G or Form 15 H.
Want to know the difference between 15 G and 15H?
Read this posting.
What Is The difference between 15G And 15H forms.
Also read What Are the Types Of TDS For Which Form 15G or 15H Can Not Be Filed?
Is there other way to get exemption from TDS on interest other than 15g or 15 H?
Yes ,section 197 read with Rule 28 and 28 AA provides that any person to whom interest is payable , can make application in Form 13 to A.O for authorizing the deductor to either deduct the tax at NIL rate or at lower rate .
Your specific query
is deposited and interest of RS 10,000 is paid, TDS will be on RS 10,000 only and not on 1,10,000.
Depositing your money in name of your wife can save you from TDS somewhat , but will create complexity as the interest is required to be added to your total income on account of clubbing provision u/s 64 of the I T Act. As far as son is concerned, no such clubbing will take place. So some TDS can be saved .
I feel you apply in Form 13 to A.O for deduction of tax either NIl rate or lower rate which will suffice your yearly tax liability.
thanx 4 the info.
1. the TDS limit 4 all banks have been raised to Rs. 10,000K in a financial year w.e.f. june-08.
2. assuming ROI is 10%pa, if u put approx 96,000 lakh in a branch for 1 yr then it will not attract TDS. For 2 yrs it may be 92,000, & so on (the interest is quarterly compounded)
3. U can invest in different branches up to that limit in each of them – there r no dearth of bank branches in India.
4. remember u can get rid of the TDS only. But all these FD interests r TAXABLE & u have 2 declare, which r accrued even if u have not got in hand. (say for a cumulative deposit for 2 yrs will give u the total interest at the end of 2 yrs. But u have 2 declare each yr the interest accrual as of the 31st march in that FY.
thanx !
thanx 4 the info !
1. one can use the form 15G & H for TDS exemption.
2. TDS on its own is not bad, because anyhow u have 2 pay IT as per ur income calculation (all interests r taxable), which is oftenmore than ur TDS. U have 2 pay only the diff.
3. the trouble arises when one has nil/zero IT liability including all sources of income in a yr & TDS is deducted – it becomes difficult 2 get the refund after filing the return. – often 2/3 yrs.
4. again the form 15 G / H declares that u have NIL / ZERO tax liability in a particular yr.- so it can be used for these kind of people & not for those who have a tax liability
thanx !
There is one more restriction in small print, in the declaration in Form 15G,
A person can not give this declaration if the Interest income exceeds maximum exempted level for that particular assessment year.
Suppose if the interest income itself is more than 150,000 non senior citizen male can not give this declaration in Form no. 15G, whether he got tax liability or not.
IF at all an HUF give Form No. 15G to a Bank, then whether he can get Exemption or not?
HUF can submit a declaration in form 15G as long as its interest income is less than 150,000 and tax liability is NIL for the year ending 31-3-09, to come out of the TDS net.Bank should be given this declaration in duplicate well in advance, i.e before the interest for the year / quarter / month is credited. Please do not wait till the last day of the financial year and do not blame the bank for not acting on your request.
Nalam Ravindranth
S.R Mohan & Co.,
Thanx for the query.
The answer is YES ! – subject to fulfillment of required conditions.
For all practical purposes HUF is treated in the same way as an Individual.
But only 15G is applicable & not 15H as this is meant for senior citizens. And HUF as a senior citizen is not a viable concept.
Thanx !
=Himansu S M
I somehow differs with the views of srmohanandco that if the interest income itself is more than 150,000 non senior citizen male can not give this declaration in Form no. 15G, whether he got tax liability or not.
In my opinion in case the assessee is eligible for deduction u/c VIA (80C to 80U)and his/her tax liabily is nil, the assessee can file declaration in Form no. 15G for non deduction of TDS from interest income
I somehow differ with the views of srmohanandco that if the interest income itself is more than 150,000 non senior citizen male can not give this declaration in Form no. 15G, whether he got tax liability or not.
In my opinion if after availing the deduction u/c VIA (80C to 80U) from the gross total income if the tax liability of any assessee is nil may be interest income be more than 150000 the assessee can give declaration in form 15 G for non deduction of TDS
kindly clarify
Dear Sir,
I request Sri Sudershan Kumar to read carefully the paragraph 4 of Form 15G, which reads like this
“4. that my income from he dividends/interest on securities/interest other than interest on securities/units/amounts referred to clause(a) of subsection (2) of section 80CCA or the aggregate of computed in accordance with the provisions of the income tax act , for the previous year ending on— relevant to the a.y —- will not exceed the maximum amount which is not chargeable to income tax .
Hence I feel it is gross income from the above sources before the deductions, if any under chapter VI A.
There is difference between non senior citizens and senior citizens. Form 15H speaks about the tax liability being NIL.
I wish to hear from you
Regards,
With effect from 1-6-2002, the provisions of section 197A have undergone a change. Soon after this amendment,the popular publication of TAXMAN, “Maser guide to Income Tax” 2002, gave an illustration in Para 10.4 in page 1.187, which reads like this.
” Suppose the aggregate income of an individual from interest on securities——— is likely to aggregate to Rs. 51,000( then the limit was only Rs. 50,000). In such case since the income exceeds the threshold limit upto which the the income is not taxable, he will not be able to furnish the declaration in 15G under the amended section. The position will remain the same, even if the tax on total income is NIL on account of loss under the other heads or deductions under section 80L or rebate under section 88.
My statement, that one can not give a declaration if the income under these specific heads exceeds Rs. 1,50,000, irrespective of the deductions, gets support from this publication.
I think the law did not change subsequent to this amendment.
I sincerely wish to hear from other friends.
i m a company and pay interest Rs. 5000/- but the receiver's income is below taxable, do i have to deduct tds