Tag: Tax

Many people whose income doesn’t fall under the tax slab have mostly invested in products such as FD through which they can earn interest. But can we do anything to make sure that the bank does not deduct TDS on interest earned if our total income is not taxable?

If you all don’t know then let me highlight to you that it is mandatory for banks to deduct TDS on our interest income. If our income is not taxable and we also earn interest from other financial products etc..then we will have to provide Form 15G and 15H to the bank so that bank doesn’t deduct TDS since our income is not taxable.

In this article, I will be discussing all aspects related to Form 15 and 15H.

What are Forms 15G and 15H?

Forms 15G/15H are forms that an individual can submit to ensure that the Tax Deducted at Source (TDS) is not deducted on the interest income if she/he meets the applicable conditions. Always remember, that if an individual wants to claim tax deduction through Form 15G/15H, then the individual must have a Permanent Account Number (PAN).

Form 15G is to be filled by individuals aged below 60 yrs and Form 15H is to be filled by senior citizens aged 60 yrs and above. You can click on this link if you want to download the form directly from the website. If you want to have a look at the form, click on the link below,

• Form 15H
• Form 15G

Eligibility Criteria to fill these Forms –

a) For Form 15G –

• An Individual or HUF or trust or any other assessee
• Only Indian Resident can apply
• Age should be less than 60 years old
• Tax calculated on their Total Income should be nil
• The total interest income for the year should be less than the basic exemption limit of that year

b) For Form 15H –

• A Resident Indian Individual
• Age should be 60 yrs or more (senior citizen) during the year for which you are submitting the form
• Tax calculated on their Total Income should be nil

Who all are not eligible to fill these forms?

The following are not eligible for submission of Form 15G/15H –

• Company (Private and Public)
• Partnership Firm
• Non-Resident Indian (NRI)
• An Individual whose estimated total income or the aggregate total income exceeds the basic exemption limit.

Can these forms be filled online or just offline?

a) Form 15G (online and offline) –

An individual can choose to submit Form 15G offline or online, depending on the facilities provided by their bank or financier. Firstly they need to check if their bank allows submission of Form 15G online. If this facility is available in their bank, they can simply log on to their internet banking account and fill up the form online. Once you have filled up the form, recheck the details, and hit submit. For your future reference, you can download the submitted form.

The other option is to fill a physical form and submit it to the bank. The forms are available in the Income Tax Portal. You can download the form and get printouts of the same. You can then submit these duly signed documents to the bank or financier where you have the savings accounts. You can also submit it at the post office or the company you work for depending on your requirement.

Currently, there are 2 banks that provide online filling of the forms. If you have an account in the below 2 banks then you log in through internet banking and fill these forms –

• State Bank Of India
• ICICI Bank

b) Form 15H (online and offline) –

You can submit Form 15H online or offline mode. To submit it offline, you need to download the form from the Income Tax portal as discussed above. Once you have completed filling the form, you can submit these forms at your bank or post office or your employer (in the case of Provident fund).

If your bank or financier allows submission of Form 15H online, you can log on to your internet banking and fill up the form. You can submit the form directly using internet banking. For your future reference, you can download the submitted form.

Currently, there are 2 banks that provide online filling of the forms. If you have an account in the below 2 banks then you log in through internet banking and fill these forms –

• State Bank Of India
• ICICI Bank

A detailed guide on how to fill the form through SBI Internet Banking –

Different other scenarios where these forms can be utilized –

a) TDS on EPF withdrawal –

TDS is deducted on EPF balance if it is withdrawn before 5 years of continuous service. If an individual had less than 5 years of service and plans to withdraw their EPF balance of more than Rs.50,000, then they can submit Form 15G or Form15H. However, to fill this form the tax on an individual’s total income including EPF balance withdrawn should be nil.

b) TDS on income from Corporate Bonds –

If an individual holds corporate bonds, then TDS is deducted on them if their income from these bonds exceeds Rs 5,000. They can submit Form 15G or Form 15H to the issuer requesting the non-deduction of TDS.

c) TDS on post office deposits –

Post offices that are digitized also deduct TDS and accept Form 15G or Form 15H, if an individual meets the conditions applicable for submitting them.

d) TDS on Rent –

TDS is deducted on rent exceeding Rs 2.4 lakh annually. If the tax on an individual’s total income is nil, then they can submit Form 15G or Form 15H to request the tenant to not deduct TDS.

e) TDS on Insurance Commission –

TDS is deducted on insurance commission if it exceeds Rs 15000 per financial year. However, insurance agents can submit Form 15G/Form 15H for non-deduction of TDS if the tax on their total income is nil.

FAQs –

i) What will happen if I forget to submit the form on time to the bank?

If you forget to submit these forms on time then the bank will deduct the TDS. However, one can claim the deducted TDS by filing an ITR.

ii) What is the difference between Form 15G and Form 15H?

Both are self-declaration forms that an individual will have to submit to the bank once they open a fixed deposit. While Form 15G is for those who are below 60 years and come under Hindu Undivided Families (HUF), Form 15H is for everyone who is 60 years and above.

iii) Is the form provided by banks one and the same? Or is it different?

The forms which banks provide are a little different from the actual form which is available on the income tax website. However, both type of forms serves the same purpose. You can have a look at the form in the above section.

iv) Can HUF, NRIs submit Form 15G/Form15H?

HUF can submit Form 15G if it meets the conditions but Form 15H is only for individuals. NRIs cannot submit Form 15G or Form 15H. These can only be submitted by resident Indians.

v) Do I need to submit Form 15G/ Form 15H at all the branches of the bank?

Yes, you must submit one at each branch of the bank from which you receive interest income though TDS is deducted only when total interest earned from all branches exceeds Rs 10,000.

vi) Does filing Form 15G/Form15H mean my interest income is not taxable?

Form 15G/Form 15H is only a declaration that no TDS should be deducted on your interest income since the tax on your total income is nil. Interest income from fixed deposits, recurring deposits, and corporate bonds is always taxable.

vii) Will my interest income become tax-free if I submit Form 15G/Form15H?

Interest income from fixed deposits and recurring deposits is taxable. For senior citizens deduction of Rs.50,000 is available under section 80TTB for the interest income from fixed deposits/post office deposits/deposits held in a co-operative society. You should submit this form only if the tax on your total income is zero along with other conditions.

viii) I have submitted Form 15G and Form 15H but I also have taxable income, What should I do?

You must inform your bank that the tax on your total income is not zero. The bank will make changes and deduct TDS accordingly. You should report the entire interest income in your tax return and pay tax on it as applicable.

ix) Do I have to submit this form to the income tax department?

You don’t need to submit these forms directly to the income tax department. Just submit them to the deductor, and they will prepare and submit these forms to the income tax department. At times these forms can also be filled and submitted in the bank.

x) Is there any time limit for submitting these forms?

There is no time limit or due date for submitting Form 15G/15H to the bank. However, it is advisable to submit it at the beginning of the financial year (i.e. Apr 01) or as and when the new deposit is created.

xi) What is the time limit during which these forms are valid?

Forms 15G/15H are valid for one financial year ending on Mar 31 of every year. So, you will have to submit these forms every year if you are eligible. Submitting them as soon as the financial year starts will ensure that no deduction is done on any interest income earned.

xii) Is there any other way NRIs can refrain from TDS deduction as they are not eligible for Form 15G and 15H? 

For any NRI, whose TDS is more than his/her tax liability, such excess tax can be claimed as a refund from the Indian Tax Department (ITD) by filing the Return of Income in the particular Financial Year. Such excess TDS results in loss to NRI due to the time interval between the tax deducted and refund of such excess tax, which may take generally 1 to 2 years.

In order to address the above situation, a procedure has been prescribed under the Act, whereby NRI recipient of income can apply online to ITD (in a prescribed format) along with the relevant supporting documents to issue a Tax Exemption Certificate (TEC) authorizing the payer of income (who deducts tax) to deduct tax at a lower rate or Nil rate, as the case may be.

In the case of NRIs, whose actual tax liability is lower than the rate of tax prescribed under the Act, it is beneficial to obtain a TEC. An NRI should apply for TEC under few situations listed below –

Procedure – The Jurisdictional Assessing Officer (from the International taxation ward of the ITD) of an NRI generally issues a TEC between 2 to 4 weeks from the date of application.

Validity – TEC is normally valid for the period for which such TEC is obtained (i.e. a Financial Year) and for the specific income as stated in the TEC.

Filing Return of Income – NRI who has obtained the TEC has to compulsorily file his Return of Income in India for that Financial Year.

xiii) How can an individual make use of these forms?

These forms can be used only if the tax calculated on the individual’s total income is nil for the financial year. Both forms – Form 15G and Form 15H – have a validity of one financial year. That is why either of them is required to be submitted at least once every financial year. Forms 15G and 15H are basically submitted to save TDS on interest income.

For example, Banks deduct TDS on FDs when interest income is more than Rs 10,000 in a financial year. But if the total income is below the taxable limit, then Form 15G and Form 15H have to be submitted to the bank requesting them not to deduct any TDS on the interest.

Points to Remember –

• An individual can only submit Form 15G/15H to a bank with a valid PAN, if an individual doesn’t have a valid PAN then, the tax will be deducted at 20%.
• It is advisable to submit a copy of the PAN card with the cover letter.
• The individual should make sure he/she receives an acknowledgement while submitting Form 15G/15H. This acknowledgement can be kept for future reference.
• Acknowledgement of submission of PAN details is useful if a dispute with the bank arises.
• The individual will need to submit the details of the Form 15G/15H submitted by him/her to other banks as well as the interest income amount mentioned in these forms.
• As the individual has submitted his/her PAN, the respective assessing officer will have access to all the information submitted by the individual to other banks and will cross check if there is any incorrect information submitted by the individual or not.
• There is a provision for imprisonment for a minimum of three months if an individual is found to have provided incorrect information in the declaration forms.

A short video on How to Fill these Forms –

a) Form 15G –

b) Form 15H –

Conclusion –

So this was all that I wanted to share in this article. If you have any queries then you can post them in the comments section.

Direct Tax Code is the new proposed bill for changing the tax rules in India. If it comes into effect from April 1, 2011, it will change the whole taxation system and will change the way our taxes are calculated from years . The new tax code will have impact on Insurance Policies, Home Loans, PPF, Ulip, Mutual Funds, Shares and Taxation slab. A common man has to understand whats there in future for him so that he can plan accordingly. However the Direct Code tax is still in draft and might come into effect, but there is no guarantee. Experts feel that it can not come in its original form. Lets see what are the impacts on different investment products if DTC comes into effect .

Effect on Endowment/Moneyback insurance policies

As per Direct tax code, any amount you receive at maturity from an insurance policy (including bonus) will be taxed. However this rule will not apply for policies where;

1. In any given year , premium paid in a year is less than 5% of Sum Assured , and
2. The policy runs till maturity.

So if you have anyEndowment Policy or Moneyback Policy and in any year if you paid or will pay more than 5% of Sum assured as premium or make your policy as paid up in between, all the money you receive in the end will be taxed at the time of maturity. For policies where premium paying term is lesser than the total tenure, still all these rules will apply. For example , if you have a policy where sum assured is Rs 5,00,00;  then there can be two cases where you will be taxed at the end.

• First : If you pay more than 25,000 as premiums .
• Second :  Even if you pass this 5% rule , but you do not run your policy till maturity.

Effect on ULIP’s

The same rule applies to ULIP also. The first point is exiting before 10 yrs will badly hurt you from cost point, as all the Ulip’s are heavily front loaded and exiting before 10 yrs means the total cost is (commissions) turns out to be too much for you. Only if your total premium per year is less than 5% of the Sum assured, you can save yourself from getting taxed. But most of the Ulip plans in the country will not meet that criteria as majority of the policyholder’s pay much more than 5% of sum assured as premiums. A big number of policies have sum assured as 5 times of the premium, as it’s the minimum requirement of a Ulip policy . Read about recent war between SEBI and IRDA over ULIP control

Effect on PPF

For PPF account any amount you have accumulated till 31 Mar 2011, will be tax free in any year of withdrawal. However any new contribution made after 31 mar 2011 will be taxed in any year when its withdrawn . All these rules will apply to existing as well as new accounts. One important point you should consider here is that PPF will still remain one of the best debt product, because this “tax on maturity” rule will be applicable on all the products, so from that point , PPF will still have one of the best returns in debt segment. This whole rule applies to your EPF as well . (Tip : Read Why you should open a PPF account even if you dont need it right now)

Strategies

• Deposit more this year (2010-2011, so that amount becomes tax-free at the end .
  
• Invest in your child who is below 3 yrs, so that you get benefit of tax on amount contributed for next 15 yrs, and after 15 yrs , when your child is age 18 , he/she will get that amount and it will be considered as his/her income , but at that time the tax outgo will be lesser as they will not have any other source of income , so the tax outgo will be less . This will not be a significant, but still 😉 (Read Clubbing Rules of Income tax)
  
• Dont withdraw big partial chunks in between. Better withdraw smaller amounts so that in any particular year your taxable incomes remains low

Effect on Home Loans

Self occupied house

The tax benefits on self occupied home loans will be withdrawn once DTC comes into effect . At present Rs 1 lac is exempted for principle repayment and Rs 1.5 lacs for the interest repayment. After DTC comes, you will have not get tax benefits (Report on Returns from Real Estate in India)

House given on Rent

1.5 lacs interest deduction will be applicable for the home loans where the house is the second one and is given on rent. You might want to reconsider taking home loans if tax break was one of the major deciding factor .

In true sense tax break on home loans should always be secondary factor while deciding the purchase of house, because if you look back in your home loan documents, it’s clearly written that tax benefits are always as per the applicable rules of the year. So dont feel cheated and yell on govt for this.

Effect on Mutual Funds & Stocks

DTC does not differentiate between short-term and long-term capital gains, which means that any withdrawal after 31st Mar 2011 will be taxed in the year of withdrawal.  Currently any profit earned after 1 yrs of investment is tax-free in Equity mutual funds and Stocks , this will not remain so . So if you have any Equity mutual funds or stocks with you, better sell them just before 31st Mar 2011 , so that current tax rules apply to that part of your investments .

Effect on Kisan Vikas Patra(KVP)/NSC/Tax Saving FD

All of these will loose the tax benefits

Effect on Income Tax Slab

The following tax slab will be applicable

Effect on 80C

Sec 80C will be replaced by Sec 66 and limit will be raised from 1.2 Lac (20k for Infa bonds) to 3 lacs . Have a look at following classification of profucts from taxation point .

What do you feel about Direct Tax code ? Are you Happy about it ? Do you think it would be easy for Govt to bring Direct tax code without much fuss ? Share your thoughts

With the tax-planning season about to end, most individuals are rushing around to make investments to minimise their tax liability.

And although, the last date for filing income tax returns is just a few months away (July 31), some of us are still unaware about the procedure and guidelines. Have a look at recent changes in the Income tax slab and how it affects the common man.

Q. I have a Permanent Account Number (PAN). Do I still need to file my tax returns?

A. Just having a PAN number does not mean that you have to compulsorily file your tax return. As per the Income Tax Act (1961), you are required to file a “Return of Income”, if your taxable income exceeds Rs 1.60 lakh for the financial year 2009-10 (Rs1.90 lakh in case of women and Rs2.40 lakh in case of senior citizens).

However, you need to have a PAN in order to file income tax returns. Read more

Q. What are the benefits of filing income tax returns (ITR)?

A. Filing ITR is really beneficial for an individual. Apart from the legal obligation, it is mostly required for purposes like:

• Availing any kind of loan, like home, personal or education.
• Visa and immigration processing
• Income proof / net worth certification
• Refund claims (in case of excess taxes paid)
• Applying for a higher insurance cover
• and ultimately, “Peace of mind!”

Q. How does one plan for better investments under section 80C ?

A. Section 80C is the most important provision under the Income Tax Act (1961). Making use of the available tax deductions can go a long way in helping individuals accumulate wealth.

Benefits of tax planning (for FY 2008-09)

after 80C deductions (Rs)

Savings invested

@ 8% pa for 20 years (Rs)

Savings invested

@ 15% pa for 20 years (Rs)Upto Rs 1.50 lakh

Nil ———Rs 1.50 lakh to Rs 3 lakh101030048008168575Rs 3 lakh to Rs 5 lakh202060096016337151Rs 5 lakh and above 3030900144024505726
The amount saved in turns can be invested in various, in order to gain maximum benefits. Prime examples:

• Real Estate
• Gold
• Insurance
• Mutual Funds
• Fixed Deposits
• Equities

Case in point: Consider an individual, in the highest tax bracket, with a gross total income of Rs 6 lakh. If he chooses to ignore the tax sops available under Section 80 C, his tax liability will amount to Rs 87,550 (for AY 2009-10).

Conversely, if he chooses to make eligible investments/contributions of Rs 1, 00,000 under Section 80 C, his tax liability will be Rs56,650 i.e. a saving of Rs 30,900.

Look before you leap – Tips for better and effective planning of your investments:

Every tax saving investment scheme has inherent advantages and disadvantages; & each individual has to decide his investment strategy based on:

• Lock-in period and safety of the investment
• Return, before Tax / Return, Post Tax / Tax Free returns
• Whether interest will be treated as fresh investment under Income Tax Act
• Age and risk appetite
• Liquidity, surrender charges etc.

Some tips to plan your finances better:

• One should by default set aside 10% of his/her income;  Start living with your 90% of salary
• Avoid waiting to invest a lump sum, at the last minute, as most of the times we tend to run short of money, resulting in a loss of tax benefit, besides the savings and long-term capital appreciation.
• Last minute decisions mostly result in investing in unwanted and futile schemes
• Use ECS / Direct Debit facility offered by the bank for investments; this will help you invest, without fail, regularly.
• Invest monthly or quarterly as it provides long term capital appreciation
• Monthly or systematic investments also provide a check against market volatility

Watch this video to learn everything about Income tax return:

Q. Since tax is already deducted from the salary well in advance as a TDS, then why does one need to file Income Tax Return?

A. Although tax has been deducted and there is no further liability to pay tax, an employee has to compulsorily file his/her income tax return if he/she exceeds the maximum amount, not chargeable to tax.

It is, in essence, a declaration to the income tax department that you have derived only income from salary and not any other source (if you do have income from other sources, then the same needs to be incorporated).

Note. Many a times, employees do not include the interest that they receive on their savings bank account. The entire interest earned on the savings bank account is taxable.

Q. Can you please explain the complete procedure to file ITR?

Step 1: Gather all the necessary documents.

These are:

1. Form No. 16: This is issued by the employer, stating your income from salary, and tax deducted by your employer from salary income.

2. Form No. 16A: This is received from all the payers, who have deducted tax, while making payment to you, during the year. For e.g. banks and companies.

Summary of all bank accounts operated during the year: This summary will give an idea about all the interest income earned during the year.

Details of property owned during the year: If you have bought some property during the year and put it on rent, then you will need details of rent received and receipts of municipal tax paid during the year.

In addition to this, if you have bought such property through a loan, do carry the loan details and a copy of certificate of interest paid during the year.

Sale & purchase bill/documents/contract note in respect of shares transactions during the year: You will also need purchase documents corresponding to the sales made during the year. In case of a large number of transactions, it is advisable that you prepare a statement of sale and corresponding purchase of these investments and arrive at the amount of profit or loss, before actually calculating your taxable income.

Details of tax payments made during the year: This is required only if you have made advance tax or self assessment payment during the year.

Step 2: Select the proper income tax return form i.e. ITR, which is based on the nature of income earned.

FOR INDIVIDUALS: Form No. Applicability

ITR 1 Meant for Individuals, who have

a) Income from salary
b) Interest income
c) Family pension

• ITR 2 Individuals/HUF not having any income on account of business or profession
• ITR 4 Individuals/HUF having income from a proprietary business or profession

Step 3: To file your tax returns:

You can file your returns either Manually or Electronically.

Electronically: The Income Tax Department has introduced a convenient way to file these returns online. The process of electronically filing your Income tax returns, through the Internet, is known as e-filing of returns. This is a really convenient facility, since it saves you the hassle of traveling all the way to the IT office.

This facility is available round the clock and returns could be filed from any place in the world. It also eliminates reduces ‘friction’ between the assessee and tax officials.

Manually: For manual/physical filing, the individual takes a print out of the respective ITR form , from the income tax site, along with the acknowledgment form, and after duly filling it, files it with the respective income tax office. Forms are available free of cost too

Q. What are the documents required, which has to be attached with returns of income?

A. Under the new procedure, be it is electronic or physical filing, individuals do not have to attach any documents or enclosures with the return of income. However, one should preserve the supporting documents as they can be called for, at a later stage by an income tax officer to check the accuracy of the claims made.

Some of the documents are:

• Detailed calculation of taxable income and amount of tax payable/refundable
• Form No. 16/16A (original)
• Counterfoil of all the tax payments made during the year
• Copy of documents, concerning sale of investments and properties
• The Copy of bank statements
• Copy of proof for all the deductions and exemptions claimed in the return of income

In case of a refund, the bank account details needs to be filled in accurately. In case the refund is opted to be received via ECS direct into the bank account, adequate care should be taken to correctly fill in the MICR code.

PRECAUTIONS THAT ONE NEEDS TO TAKE

Filing returns at the eleventh hour often lead to a lot of inconvenience. Also Filing online, very close to the last day, is risky, as the peak load on the servers of the e-filing website during the last few days may make the whole online filing quite frustrating, causing needless delay.

Filing return after the due date, may lead to empty the pockets of the taxpayer who have incurred losses; which he wants to carry-forward to future years. Under the tax laws, some losses are not allowed to be carried forward for being set-off against future income, unless the return has been filed by the due date, even though all the taxes have been pre-paid.

Similarly, if a paper return is filed, the acknowledgement slip should be preserved carefully.

SOME TIPS TO AVOID LAST MINUTE RUSH

• Step 1: Select and get the appropriate forms from the Income Tax site or offices
• Step 2: If a professional is handling your taxes, meet him and make an appointment early before your accountant’s schedule gets completely booked. If you’re preparing your own taxes, set a day aside on your calendar for preparing taxes.
• Step 3: Review your tax documentation before  submission
• Step 4: You can file your returns offline or online. However, before doing so, check whether you still have a tax liability. If you are still to pay taxes, do so through Internet banking or through cash/cheque at any bank along with Form 280. In both cases, you have to furnish challan details in the income tax return (ITR) form.
• Step5: Prepare your taxes. Now that you have all of the necessary forms and documentation, you can prepare your taxes without waiting for the last minute.

PENALTY FOR FILING RETURNS LATE

For details , you should look at the article  “How to miss your tax return filing deadline and still Enjoy”

Conclusion:

A little extra care, planning & precaution on the part of taxpayers can help them avoid committing mistakes, while filing the tax return and keep away, unwelcome visits from the taxman.

It was a guest post by Rishabh Parakh, who is the director of Money Plant Consulting