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How to ensure proper TDS deduction Courtesy : Live Mint

The scope of tax deduction at source (TDS) has been widened so much that most individuals have some income on which TDS is deducted even though their taxable income may be below the basic exemption limit, or no tax may be payable because of rebates. On account of such TDS, they are entitled to a refund, which is often difficult to obtain.

For such taxpayers there are two options. First, give a declaration in form 15G (15H for senior citizens) to the payer of the income, if eligible to do so, or obtain a certificate under section 197 for lower deduction or non-deduction of tax at source. The second alternative is really not an option for most taxpayers, given the amount of paperwork and follow up required with the tax department. Most taxpayers, therefore, prefer the first option.

These forms are generally furnished at the beginning of the year as they have to be received by the payer of the income before he pays the income. To be eligible to file form 15G/15H, the law requires that a declaration is to be furnished that the tax on the estimated taxable income of the individual will be nil. However, for form 15G, there is a further requirement that the income for which form 15G is furnished should not exceed the basic exemption limit (currently Rs.2 lakh). This requirement does not apply to senior citizens using form 15H. Till February 2013, both the forms also included such declarations. The forms have been amended from February 2013, where, in addition to such declarations, the taxpayer is also required to give his estimated taxable income.

It is essential that the Permanent Account Number (PAN) is mentioned on the forms or else the forms would be invalid and, therefore, as good as not furnished. In fact, in the absence of a PAN, the TDS deduction rate would be 20% instead of the normal rate of 10% (for interest).

It needs to be kept in mind that these forms cannot be furnished by a taxpayer who has a tax liability, which is fully met by TDS deducted from his other income. For instance, if you have two fixed deposits, one yielding an income of Rs.2 lakh, and another yielding Rs.1 lakh, your tax liability for the current year would be Rs.8,240 (assuming no other income or deductions). This liability is more than covered by the TDS of Rs.10,000 deductible from the interest of Rs.1 lakh on the second deposit. However, for the first deposit, you cannot furnish form 15G/15H as the tax liability on your estimated taxable income is not nil, but Rs.8,240. Similarly, if you are a salaried employee, from whose salary tax is deducted at source, you cannot furnish these forms if your income is taxable, even though there may not be net tax liability because of TDS on salary. This new requirement of stating estimated taxable income, therefore, ensures that a taxpayer does not furnish a baseless declaration as was done by many taxpayers in the past.

The estimated income by way of interest in respect of which the certificate is being sought is also required to be furnished. The new forms also have certain additional requirements to be furnished, such as assessing officers’ code (with a break-up of area code, AO type, range code and AO number). The form presumes that persons filling up the forms are not tax specialists, who can find out these requirements and fill them up, which is certainly not the case. In fact, in many cases, particularly for bank interest, it is the bank staff who assist customers in filling up the form and they too are not fully conversant with such technical details. One fails to understand the reasons for increasing complexity for the common man and senior citizens.

Where there was really a scope for simplification, nothing has been done. The new forms still contain declarations for dividends on shares and income from mutual funds as if such income is subject to TDS. Such incomes are exempt from tax and, therefore, there is no question of TDS. No shareholder or unitholder would, therefore, ever be required to furnish these forms.

The requirement of furnishing these forms is to ensure that the inconvenience of tax deduction and wait for the consequent refund is avoided, while at the same time, the tax department has a record of the amount of such income received by an individual without TDS. The computerized tax system would ensure that such income is captured properly.

Unfortunately, in recent years, one sees the increasing trend of placing greater burden of furnishing more and more details on taxpayers, with reducing responsibility and accountability of the tax department. It is perhaps time to think of having some sort of balance—too much compliance burden on taxpayers reduces the time and resources available for more productive activities. Also, the limits for TDS deduction need to keep pace with the high rates of inflation that we have, so that persons with lower income do not have to bear the burden. Perhaps senior citizens, who get bewildered by such forms, should be spared the burden of furnishing them. In any case, the banks can furnish details of interest paid to such persons on the basis of their PAN, which is a part of the know-your-client norms. That will make life easier for many people

© 2012 Centre for Tax Awareness and Research Design and Developed by

During my 37-year-old career with Income Tax department, I moved from place to place, post to post. For me, every posting was a challenge, and at the same time an opportunity to deliver.

After my retirement as Chairman of Central Board of Direct Taxes, I was invited by various institutions and NGOs to deliver talks on tax matters. While advising taxpayers across sectors, I noticed, our vast salaried class including armed and paramilitary forces, pensioners or senior citizens, NRIs, professionals and small business establishments need the right guidance. Most taxpayers do comply with their tax obligations fully. Yet, they are not somehow relaxed and are burdened with anxieties. A large number of taxpayers are not even aware that getting tax refund on time is a basic right.

In one such meeting, a middle-aged man quizzed me why could not I give tax advice 24X7. For a moment, I had no answer. He then added that I should give tax solutions online so that he does not need to come from a remote place to attend my lecture. I thanked him for his suggestion.

For a while I was restless. Already I had got myself enrolled as a Member of the Bar Council of Delhi and as an Advocate of Delhi High Court Bar Association, thanks to my law degree from the University of Allahabad. Yet, I was not sure how I could help the vast majority of taxpayers who somehow maintain a safe distance from the taxmen. I then tossed the idea of creating a tax think-tank with some of my former colleagues and highly spirited individuals. All of us immediately agreed on one count: millions of Indian taxpayers expect to access tailor-made tax research materials and seek guidance from those who have been parts of the tax machinery for decades.

That is how CTAR was born. So, be a part of our passionate journey to explain tax laws and rules in simpler words. Just drop us a few lines on any query related to direct and indirect tax or FEMA. We are at your assistance. We also look forward to hearing your experiences while dealing with the system.