This article is meant for people who are not liable to pay income tax but have fixed deposits or investments on which TDS is likely to get deducted.
What is TDS?
TDS stands for Tax Deducted at Source .It is an advanced tax deducted on earnings and is aimed at providing regular revenue to the government. The common investment avenues where TDS is deducted are-
- Interest on term/fixed deposits exceeding Rs 10,000/- an year
- Commission income earned by mutual fund/insurance agents exceeding Rs 5000/- per annum
This makes perfect sense. But the problem arises when TDS is deducted on the fixed deposit interest or commission income earned by individuals who do not have a tax liability –either because they do not have a salary income or their total income is within the exemption limit or in some cases the rate of tax is lesser than TDS rate. And the only way these people can get a TDS refund is that they have to necessarily file their returns, specify the excess tax paid and ask for a refund. And wait for getting the elusive refund which could take months.
Is it possible to avoid TDS? In most cases,yes.
Interest on fixed deposits
The current TDS rate is 10 % of the interest earned in the financial year. The income tax act offers the option of furnishing form 15H and 15G for claiming tax free interest receipts on fixed deposits.15H is for seniors citizens(Age 65 and above) and 15G is for non-senior citizens. These forms have to be filled at the start of the financial year and submitted to the institution where the deposit is held. The basic eligibility criteria for furnishing this form is that the final tax liability on the total income should be NIL and the total interest earned in the financial year should be within the basic exemption limit.
TDS on salary income is deducted as per the income tax slab. However if your taxable salary is lesser owing to investments under section 80C, 80D(Mediclaim premium), 80G(Donation), Housing/education loan interest etc. which are eligible for income tax deduction, it is important to declare this to your employer at the start of the financial year so that they can account for it and cut less TDS accordingly. Any TDS already deducted can be claimed back only at the time of return filing.