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Posted On: 23-Mar-2009
Tax Tip - Tell me "What are the ways to avoid undue tax deductions?"
In certain situations, income earned from certain sources, like interest earned on FDs, gets reduced due to tax deduction at source (TDS). Sometimes these might be undue because you might still fall within the exemption limits. As a result, you might have cashflow problems because your outflow is today and you might recover your refund many months later. To avoid this, you can use make declarations using certain forms so that the right amount of TDS is deducted. Before reviewing ways to minimize tax deductions, lets first understand the logic behind tax deductions.
Why do we have tax deduction, what are the rates of tax deduction for income from various sources?
Is there a way to avoid it unjustified tax deductions?
What are the prescribed forms to avoid tax deductions?
Why do we have tax deduction, what are the rates of tax deduction for income from various sources?
We earn income from various sources. When the income from each of these sources exceeds a certain exemption limit, there will be tax deduction at source. The following list shows major sources of income, the rate of tax deduction and exemption limits.
| Source of Income | Applicable Section of the Income Tax Act | Rate of TDS (Applicable rate for Individuals and HUF) | Limit up to which no tax deduction is required (in Rs.) |
| Interest on Securities | 193 | 10% | 2,500 |
| Interest other than interest on Securities. e.g. interest on FDs | 194A | 10% |
|
| Insurance Commission | 194D | 10% | 5,000 |
| Commission / Brokerage | 194H | 10% | 2,500 |
| Rental Income - Plant and Machinery e.g. Motor Car | 194I | 10% | 1,20,000 |
| Rental Income - Land and Building | 194I | 15% | 1,20,000 |
| Fees for Professional / Technical services | 194J | 10% | 20,000 |
There can be instances where the total income does not fall in the taxable slab, but you will still be liable to tax deduction. Lets take an example: Suppose Radha has salary income of Rs.1.20 lakhs per annum and she also has FDs in a bank from which she earns annual interest of Rs.15,000. Now even though her total income is below the exemption slab of Rs.1.80 lakhs for females, Radha will be liable to tax deduction on her Fixed Deposit interest as the interest amount exceeds Rs.10,000.
Is there a way to avoid it unjustified tax deductions?
Fortunately, there is a way! The Income Tax Act has a system wherein the tax payer can furnish a declaration using a prescribed form to the person responsible for deducting tax. This declaration needs to state that no tax deduction is required as the total income does not fall in taxable slab. The benefit of this is that you will not have to suffer a lower cashflow during the year, as you do not have to wait for the authorities to refund your taxes after the year end. Top
What are the prescribed forms to avoid tax deductions?
Different forms are used for different Sources of Income and types of tax payers.
Form 15G: Applicable for a resident individual, other than a senior citizen
Click here to download Form 15G
Form 15H: Applicable for a senior citizen
Click here to download Form 15H
What incomes can be declared in the above forms?
The declaration in Forms 15G and 15H can be furnished mainly if the tax payer has income from:
- Interest on securities
- Interest other than interest on securities
- The declaration should be filed only if tax on total estimated income for the relevant year is nil.
- Delivery of this form to the entity deducting your TDS must be made any time before receiving the income either directly or by credit to the account.
- This entity to whom the declaration is given must file one copy of declaration with Commissioner Income Tax before 7th day of next month.
- Authenticity of the declaration must be ensured before signing the verification. A false declaration is liable to prosecution and fine under section 277.
Form 13: Exemption from tax deduction for other incomes like commission, rental income or professional payments
Click here to download Form 13
If you have these sources of income, you can use Form 13 for the issuance of a nil tax deduction certificate. Lets take an example: Pragati is commission agent at LIC. She earns a commission of Rs.50,000 per annum and also has annual rental income of Rs. 1.21 lakhs from a portion of her house which she has let out. Even though she does not fall in a taxable slab she is liable to tax deduction on both these sources of income. In this situation, Pragati can make an application using Form 13 to her assessing officer (TDS) requesting for issuance of nil tax deduction certificate. Upon issuance of such certificate, she can forward a copy of the certificate to the person responsible for deduction tax, who on receipt of copy of such certificate shall not be liable to deduct tax and will make payments without any deduction. Top
What if she is not able to obtain such certificate?If she is not able to obtain such certificate then she have no other option but to file her income tax return and claim refund at a later date. Top
Tax Tip - Tell me "What do I need to know about capital gains?"
Watch the Video - Tax Tips - Tell me - "What do I need to know about capital gains?"
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