TDS Payment: How to Save yourself from paying excess TDS

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By Hiral Vakil on March 7, 2019

“Is there a way to spend money on our betterment and save tax at the same time?” The answer is YES. There is a way to do so through planning. As the law requires you to pay tax, it also gives you opportunities to save it as well. If your total income is not taxable, you need to plan wisely so as to avoid paying redundant TDS. All it takes is investing in the right areas such as buying a house, planning for retirement, getting family insured etc.

TDS helps Govt to continuously collect tax from every source of income.

For planning, you need to manage the nature and source of income and the investments and evaluate the expected total income for the financial year. If your total income is expected to remain below taxable limit then, in that case, you can avoid paying redundant TDS on income.

For eg. Rohit’s total income for the financial year, 2015-16 is Rs. 3,45,000 (Including interest income of Rs. 12,000 from tax saving FD). His total deductions under section 80C are Rs. 1,02,000 so his taxable income for FY 2015-16 will be Rs. 2,43,000 which is below basic exemption limit. The Banks will deduct TDS on interest incomes if the amount of interest exceeds Rs. 10,000. Here, although Rohit’s total taxable income is below the basic exemption limit, the banks will deduct TDS since the interest income is greater than Rs. 10,000. In such a situation, Rohit can use form 15G to avoid paying redundant TDS from the interest income.

How Does TDS work?

TDS is ‘pay as you earn’ method of taxation. Basically, it’s the payer who deducts the TDS directly from your income and remits to the government on behalf of the payee. TDS is applicable on several incomes such as salary, interest, rent, brokerage, commission, professional fees and others. It is deducted at a prescribed rate provided by the tax department. The Income Tax Act provides a threshold limit of each source of income after which TDS is applicable. If you have a rental income than under section 194-I of the Act, up to Rs.1,80,000 in a year is exempt from TDS.

Sometimes when you have more than one source of income during the financial year, you need to take into consideration your total income from all the sources of income to assess the tax liability and then decide if you need to do something to stay away from TDS. You can consider all the deductions and exemptions available while calculating tax liability.

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How to avoid TDS?

If the estimated total income of an individual for a financial year is less than the basic exemption limit than TDS can be avoided. In the case of a salaried individual, you can declare your other income and investments and expenditure that qualifies for tax deductions and exemptions to the employer. Depending on your declaration, the employer deducts TDS.

However, in the case of non-salary incomes, you need to fill out certain forms to avoid TDS.

  1. Form 15G/15H are self-declaration forms for interest income on securities or dividend or interest on other securities or income in respect of units under section 197A. For example: If you are receiving interest on fixed deposits, and you submit form 15G to the bank, the bank will not deduct TDS from your interest income. Please note that Form 15H is for senior citizens (Aged 60 years or more)
    • The provisions to use these forms has now extended to include rental income as well from 1st June 2016.
    • It is a good practice to file form 15G/15H at the beginning of a financial year to avoid unnecessary deduction of TDS.
    • You may need to give forms separately for a different source of income. If you have fixed deposits in two banks, you need to give form 15G/15H to each bank.
    • The forms have to be submitted every financial year. Because, even though you will get a final interest only on maturity, TDS will be cut on the accrued interest for each year.
  2. Form 13 needs to be filled out in case of commission income, brokerage income or lottery tickets etc. This form has to be given to the income tax assessing officer (AO) to get a certificate to deduct tax at a lower rate or not at all as may be appropriate. The assessing officer may issue this certificate if he is convinced that the total income of the applicant justifies lower or no taxation.

Note: This certificate is valid only for the year for which it is given to the taxpayer.

Things to keep in mind

  • Before furnishing forms and certificate to avoid TDS, you need to assess total income carefully. Because there are penal provisions if the tax department finds that the assessee is deliberately avoiding TDS.
  • Once these forms are furnished there is no provision in the income tax act regarding the withdrawal of these forms.
  • If your income for the year is more than your evaluation, you should do self-assessment of tax liability on extra income and pay advance tax on it.
  • The forms are easily available at banks, post office branches and on the tax department website. Nowadays you can also submit for 15G / 15H electronically