Income Tax: How to save tax on interest income from FD, recurring deposit, and other saving instruments

If you have parked your money in fixed deposits (FD), recurring deposits, or any other saving instruments you must be aware that the interest earned on these are taxable. Under section 194A of the Income Tax Act, banks have to deduct tax at source or TDS when an individual's interest income exceeds the Rs 40,000 threshold in a year, in the case of senior citizens the limit is Rs 50,000. 

However, if an individual's total interest income is below the taxable limit, then they can submit Form 15G and 15H to the bank and request them not to deduct any TDS.

How do forms 15G and 15H work? 

Individuals below the age of 60 years whose total interest income is below the taxable limit can submit Form 15G. For senior citizens (aged 60 years and above), Form 15H can be submitted.

It should be noted that Form 15G and Form 15H are valid only for one financial year. Therefore, it needs to be submitted for each financial year in which the individual wants to avail the benefit of non-deduction of TDS.

Let's understand who is eligible for submission of Form 15G and Form 15H 

Source: Clear Tax

-In the second example a submitted Form 15G cannot be submitted even though tax on total income is Nil, because the interest income is more than the basic exemption limit.

-In the third example, a senior citizen of age 68 years in the above example can submit form 15H as his tax liability is Nil.

-Condition of interest income is more than the basic exemption limit is applicable for form 15G only and not for form 15H. Form 15H can be submitted by senior citizens even if the interest income is more than the basic tax exemption limit, provided that the taxable income (after deductions) is below the exemption limit.

It should also be noted that Forms 15G and 15H are applicable only for ‘residents’, hence a non-resident cannot take benefit of these forms.

Places where Form 15H and 15G can be Submitted – Apart from Banks 

Apart from banks, some of the places where Form 15H and 15G can be submitted are mentioned below: 

>>Insurance Commission 

>>Rent 

>>Post Office Deposits 

>>LIC Premium Receipts 

>>Income from Corporate Bonds 

>>EPF Withdrawal

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