Specific income is tax exempt according to form 15G
I am employed in a PSU bank. I wish to benefit from an exemption from withholding tax at source (TDS) on my recurring deposits (RD), which are likely to expire in 2027 and 2030. My income being greater than the TDS exemption ceiling, I cannot submit Form 15G. However, I intend to pay tax up front on my RD interest income. Can I get a TDS exemption certificate? The purpose of obtaining an exemption certificate is to protect the maturity value of the RD.
—Subodh Prasad Karnav
We understand that you are a resident of India and not a senior citizen (now as well as in the course of recurring deposits due).
In accordance with the provisions of the Income Tax Act, when the interest income from term deposits with prescribed financial institutions for a fiscal year (FY) exceeds the prescribed limit (currently ??40,000), the TDS at the applicable rate will be deducted.
When the individual’s total income is below the basic exemption limit, Form 15G may be submitted to the prescribed financial institution (including a bank) requesting that no tax be deducted on the income of the individual. interest paid to that individual on deposits.
In addition, when the tax rate at which the total income is subject to tax is NULL or is lower than the rate at which the TDS is deducted (regardless of any withholding tax paid by the recipient of the income), a tax claim lower or The NIL Deduction Certificate (LDC) can be issued to the jurisdictional tax officer in the form prescribed by the income recipient. After reviewing the relevant documents, the tax official may, at his discretion, issue an LDC indicating a lower rate of TDS deduction at his discretion. In such case, the TDS will be deducted at the rate specified in the LDC.
Separately, also note the following from a schedule for taxing this income. Interest income from recurring deposits is taxable under “income from other sources” (IFOS) according to the accounting method (ie cash / cash basis) that you use regularly.
As a result, if historically you have offered interest income / income from other sources on an accrual / revenue basis, you can also follow the same approach for income from these RDs. Interest income will be taxable at the slab rates applicable to you for the respective financial year in which it is proposed for tax. Any TDS already deducted by the bank on these deposits in the relevant fiscal year will be available as a credit against the income tax you will have to pay for the relevant fiscal year. If the taxes withheld at source are lower than the applicable tax rate, you will have to pay the balance of the taxes by paying withholding tax according to the prescribed installments.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG India.
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