Income tax is deducted at source (TDS) on almost all types of income. The rate of TDS and the threshold beyond which the TDS is applicable depends upon the type of income. This creates problems for individuals whose income is under the basic exemption limit. Such persons will be forced to suffer TDS even though their income is not taxable in the first place. And though TDS or withholding tax is in fact tax paid in advance and credit for the same can be claimed while filing the return, the process is quite cumbersome especially for those investors who aren’t liable to file a tax return in the first place.
In other words, from the final tax liability of the taxpayer, the amount representing the TDS has to be reduced and only the balance will be the final tax liability. However, what happens when the situation reverses? Suppose the final tax liability is lower than the TDS?
Or going a step further, the investor may not even be liable to pay any tax (by virtue of his total income being below the exempted slab) and yet the interest income that he earns may have been subjected to TDS.
In such cases, the only practical solution is to file the tax return specifying the extra tax paid and request a refund. However, regular taxpayers know too well the general delay involved in getting a refund, if at all.
Luckily, the Income Tax Act provides a solution. As they say, prevention is better than cure and so let’s examine the ways and means of preventing one’s income from being subject to the dreaded TDS.
Sec. 197A read with Rule 29C provides for furnishing declarations by only a Resident individual in Form-15G & Form-15H (for senior citizens) in order to enable the payer to make the payment without TDS if the tax payable on the estimated total income is nil.
The declaration under Form-15G can be filed, only if both the following conditions are simultaneously satisfied:
- The tax on estimated total income after claiming deductions under Chapter VI-A is nil, and
- The aggregate of income from (i) dividend other than dividends from listed domestic companies (which has suffered DDT), (ii) interest on securities, (iii) interest other than interest on securities, and (iv) repayment of deposits under the National Saving Scheme, does not exceed the thresholds applicable.
If you examine this second condition carefully, you will find that the aggregate of incomes without any deductions u/ss 80C, 80D, etc. from only the four sources enumerated above should not be more than the tax threshold applicable to the assessee, irrespective of rest of his income. Yes, this is indeed complicated.
To mitigate the pressure on senior citizens arising out of these complications, the second condition is not applicable to them.
Such declaration should be made before the very first payment during the year becomes due. If the ITO discovers a defect in the declaration, it is his duty to allow the defect to be rectified if the assessee submits a petition to rectify it — Vijay Hemant Finance & Estate Ltd v ITO  238ITR282 (Mad).
Ensure that you are eligible to file the form for non-deduction of the TDS. The payer is expected to relay all such payments to the Department and it gets checked for its veracity by the computer.
Sec. 197: TDS at Lower or Nil Rate
There is one more solution which is not very popular because it depends upon the discretion of the ITO. On receiving an application from a taxpayer for TDS at a lower or nil rate, the ITO, after examining the veracity of the claim, may issue an appropriate certificate on a plain paper to that effect within one month from the date of application (Instruction No. 1/2014, dt. 15.1.14).
Almost always, this turns out to be a fruitless exercise. Firstly, for obvious reasons, it is difficult to convince the ITO and secondly, if the sanction is granted, it is applicable for only the current FY. Moreover, such a certificate is interim or tentative or provisional in nature and would not bar the AO from initiating proceedings by changing of his opinion — Areva T&D the Division Bench of the Delhi High Court, held on 25.4.11.
Fresh forms are required to be filed each year. As incomes of investors may differ from year to year, the eligibility for furnishing the forms has to be ascertained every year. Secondly, for optimum benefit, these forms need to be furnished at the beginning of the fiscal such that the entire amount of interest escapes TDS. If the form is filed during the year, the tax already deducted cannot be adjusted against future tax deductions.
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