Jigar M. Patel
International Tax Attorney
Section 194A of the Income-tax Act provides for tax deduction at source (TDS) at 10% out of interest payments exceeding Rs. 5,000 in a financial year. The threshold limit for TDS in case of interest paid on Bank Deposits or Small Savings Schemes is Rs. 40,000
However, with a view to grant relief to persons who are not under liability to pay any income-tax, special provisions have been made under Section 197A, which permit the benefit of no tax deduction even on interest payments exceeding the aforesaid limits. This benefit can be availed by filing with the person making the payment of interest, a Declaration in the prescribed form as under:
- Form 15G by a Resident other than a Senior Citizen
- Form 15H by a Resident Senior Citizen (being a person of the age of 60 years or more)
Two important issues in the above regard analyzed in today’s column will provide useful insights.
Special Privilege to Senior Citizens
Section 197A(1B) provides that the benefit of no TDS cannot be availed in a case where the amount of interest to be received exceeds the maximum amount not chargeable to income-tax, though the concerned person may not be under liability to pay tax on his total income, keeping in view the benefit of any deduction or rebate. In view of the same, the declaration in Form 15G can be filed by a resident individual or HUF, only in a case where the interest payment does not exceed the basic exemption limit of Rs. 2,50,000 (or Rs. 3,00,000 under the New Tax Regime).
However, Section 197A(1C) grants a special concession to resident senior citizens under which the aforesaid condition in relation to the amount of interest not exceeding the maximum amount not chargeable to income tax has been waived.
Thus, if in the case of a senior citizen, where the tax payable on the total income is Rs. Nil, after availing the benefit of eligible deductions under the Section 80 family or rebate under Section 87A, the privilege of no TDS can still be enjoyed for amounts of interest exceeding the basic exemption limits. This view has also been fortified by the clarification under CBDT Notification dated 22-05-2019.
In fact, for the current FY 2023-24, a resident senior citizen can file Form 15H even in a case where the total income does not exceed Rs. 7 lakhs, since considering the benefit of tax rebate, no tax would effectively be payable by him.
AOP, BOI, Trust also Eligible?
The common notion that the benefit of no TDS can be availed only by an individual or HUF is a myth. Taking a close look at the provisions of Section 197A(1A), it needs to be borne in mind that Form 15G can be filed by any person other than a Company or a Firm, which would include not only an individual or HUF, but also an Association of Persons (AOP) or Body of Individuals (BOI), in whose case the basic exemption limit is also Rs. 2,50,000.
The status of a Charitable Trust under the Income-tax Act is that of an AOP. Thus, small Associations or Trusts, not having interest income exceeding Rs. 2,50,000 and not attracting any tax on their total income, can well enjoy the benefit of exemption from TDS by filing Form 15G.
