Section 197A of Income Tax Act: No TDS Deduction in Certain Cases
Updated: Oct 1
Section 197A of the Income Tax Act provides a significant relief to taxpayers whose total income falls below the taxable limit. This section allows certain individuals and Hindu Undivided Families (HUFs) to receive specified types of income, such as interest on bank deposits and dividends, without the deduction of Tax Deducted at Source (TDS). By submitting Form 15G (for individuals below 60 years) or Form 15H (for senior citizens), eligible taxpayers can ensure that no tax is deducted at source, thus simplifying their financial management.
In this blog, we will explore the provisions of Section 197A in detail, discussing who is eligible for the exemption, how it applies to various types of income, and the process for submitting the necessary forms.
Table of Contents
Overview of Section 197A of Income Tax Act
Sec 197A of The Income Tax Act, 1961 provides that taxpayers are not required to deduct tax at source for certain types of income subject to certain conditions. This section mainly applies in the case of interest income on securities, dividends, and other specified incomes and allows eligible taxpayers to receive such incomes without deduction of TDS, subject to furnishing a declaration in prescribed Form 15G or Form 15H.
The purpose of Section 197A is basically to make the process of receiving income more hassle-free for the taxpayer, in cases where the end result would anyway be 'nil' income tax payable, after considering deductions and exemptions.
Why is it Important to Know About TDS Exemptions?
Better Cash Flow: By availing exemption from the TDS deduction, the individual has the entire amount of income in his hand. This is more beneficial for retirees and fixed-income assesses who need interest or dividends to sustain their daily needs.
Decreased Administrative Burden: In case of those incomes which are not more than the basic exemption limit, Section 197A saves the process of claiming refund which is time-consuming and cumbersome.
Financial Planning: It allows better financial planning by taxpayers as the assessee is aware of TDS exemptions. It ensures proper tax payment without overpaying and the surplus cash enables them to make an informed investment decision.
Ease of Compliance: The knowledge of when and how to claim the exemptions under Section 197A would keep the taxpayers away from the mess and legal repercussions due to incorrect TDS deduction. Apart from that, it helps in better compliance with income tax laws and regulations.
Knowing the Obligations: Since section 197A spreads an awareness of the rights and obligations available to the taxpayers under the Income Tax Act, it makes them more proactive in the management of their own tax profile.
Eligibility Criteria for No TDS Deduction as per Section 197A of Income Tax Act
Who Can Claim the Exemption under Section 197A?
The exemption under Section 197A is granted to certain types of taxpayers under certain circumstances. Following are the eligible taxpayers for claiming deduction under Section 197A:
Individuals and Hindu Undivided Families (HUFs): Individuals and HUFs must submit a valid declaration using Form 15G or Form 15H to the payer stating that their income for the year is within the exemption limit. Hence, no TDS should be deducted.
Senior Citizens: The threshold limits for senior citizens aged 60 years and above are different. They can claim an exemption from TDS by submitting Form 15H if their total tax on estimated income is nil.
Super Senior Citizens: Individuals' who are 80 years of age or more can claim TDS exemption by submitting Form 15H, if their estimated tax liability for the relevant year is nil.
Types of Incomes Covered under Section 197A
Section 197A includes several types of incomes in its purview where the requirement to deduct TDS can be exempted on fulfillment of the eligibility criteria and relevant documentation. For example:
Interest incomes from Banks and Post Offices: This includes interest from bank saving account[s], fixed deposits, and recurring deposits. For avoiding TDS from all these incomes, the eligible taxpayers are required to submit requisite forms at the start of the financial year or at the time of opening the deposit account.
Interest on Corporate Bonds and Government Securities: Interest on Corporate Bonds and Government Securities: For certain government securities and unlisted corporate bonds, the investors can submit the forms corresponding to that for claiming TDS exemption.
Dividends: Companies issuing dividends to their shareholders can avoid TDS deduction on dividend payments for those shareholders who have furnished Form 15G/15H if their total income is below the taxable limit.
Insurance Commission: Insurance agents receiving commission, by filing requisite declarations, can avoid TDS on their income, provided that their income is not more than the basic exemption limit.
Rental Payments: Though rent is usually not covered under Section 197A, in certain instances where tax on total income is nil, there are specific cases wherein tenants can file requisite forms to avoid TDS on rental income.
Annuities: Where applicable, the recipients of the annuity payments who do not have any taxable income can submit Form 15H so that no form of TDS is deducted.
Submitting Forms 15G and 15H
Form 15G: This is used for taxpayers below the age of 60 years whose total income, after considering all deductions and exemptions, will not be taxable.
Form 15H: This form is used by senior citizens whose tax liability is expected to be zero for the financial year.
Procedure to Claim Exemption under Section 197A of Income Tax Act
TDS Exemption under Section 197A involves a detailed process, appropriate documentation and adherence to timelines. Following are the steps to claim the exemption under Section 197A:
Step-by-Step Process to Apply for TDS Exemption:
Check Eligibility: Before applying for TDS exemption, ensure your total income for the year will not exceed the taxable limit after all deductions and exemptions. Also check if the type of income you receive is eligible for TDS exemption under Section 197A.
Obtain and Fill the Form:
Form 15G: In case an individual’s age is below 60 years and expects that the total income will not be taxable, Form 15G should be used.
Form 15H: In case an individual is a senior citizen (60 years or above) or super senior citizen (80 years or above) and expects that the total tax liability will be zero, Form 15H should be used.
Submit the Forms: Submit Forms 15G/15H to the deductor/payer (e.g. bank, corporate) at the beginning of the year or at the time of deposit or receipt of income. Ensure to submit the forms before the first instance of income payout to avoid TDS deductions.
Provide the Required Details: Provide the personal details, PAN, previous year’s tax status and estimated income for the current year in the form. Declaration has to be made in the form that tax on the estimated total income will be nil.
Benefits of Section 197A of Income Tax Act
Section 197A of the Income Tax Act offers huge benefits to eligible taxpayers by exempting them from TDS (Tax Deducted at Source) on certain types of income. Here’s how taxpayers can benefit from this:
Full Income in Hand: TDS mechanism takes away a part of income (like interest from bank deposits or dividends) at the source and the taxpayer has to claim it back as refund if the income is below taxable limit. Section 197A allows eligible taxpayers to get their full income without any upfront tax deduction and hence enhances liquidity.
No Need to Claim Refund: For many, especially retirees or those with lower income, claiming refund is a cumbersome and time consuming process. By not deducting tax at source, Section 197A eliminates the need for individuals to go through the refund process and thereby saves time.
Simplified Tax Compliance: Section 197A simplifies taxation by reducing compliance hurdles. Taxpayers do not have to worry about tracking and claiming the TDS refund which makes their financial dealings more smooth.
Better Financial Planning: With the certainty that the income will not be reduced by TDS, individuals can plan their finances better. This certainty helps in budgeting and managing monthly expenses more effectively especially for those who rely heavily on fixed income from investments.
Legal Implications and Compliance
It is very important to understand and adhere to Section 197A of the Income Tax Act, not only to avail the benefits under this section but also to save oneself from legal challenges. Non-compliance may subject one to penalties and interest charges that nullify the intention to provide financial benefits through this provision.
Legal Liabilities Under Section 197A
Accurate Declaration: The taxpayer claiming the exemption filed through Form 15G or Form 15H shall make an accurate declaration in either of the forms. The declaration should state that the tax liability is below the basic exemption limit.
Eligibility Criteria: This can be furnished only by those taxpayers whose income is below the taxable limit and satisfies the other conditions specified in Section 197A. Wrongful claims for eligibility may create compliance issues.
Timely Submission: Form 15G or Form 15H should be submitted before the first accrual of the income, be it interest or dividends, so as to avoid TDS. Delays in submissions may lead to TDS deduction which the taxpayer would have to reclaim as refunds.
Implications of Non-Compliance
Penalty for False Declaration: In the event of false declaration of income as non-taxable income or submitting wrong information, a taxpayer can be penalized under Section 277 of the Income Tax Act. It may involve rigorous imprisonment along with fines depending on the severity of the false declaration.
TDS Reclamation Process: If the TDS were to be deducted consequent to non-submission or incorrect submission of Forms 15G or 15H, in such an event, an income tax return (ITR) would have to be filed by a taxpayer for claiming a refund.
FAQ
Q1. What is Section 197A of the Income Tax Act?
Section 197A specifies under what conditions payment of certain types of income can be made without deduction of tax at source/TDS. It generally provides benefits to those whose income is below the taxable limit.
Q2. Who can claim exemption under Section 197A?
It is available for individual taxpayers and Hindu Undivided Families (HUFs) who are expecting their total income during the financial year to be below the taxable limit.
Q3. Which types of incomes have been covered under Section 197A for no deduction of TDS?
Types of income included under Section 197A are basically interest on bank deposits, dividends, and certain types of annuities. There are definite conditions and requirements to be fulfilled for the respective kind of income so that the exemption can apply.
Q4. How to apply for no TDS deduction as per Section 197A?
For no TDS to be deducted, the eligible taxpayers should submit Form 15G or Form 15H to the payer, be it banks or companies, at the commencement of the financial year or at the time of opening an account or making any kind of investment in it.
Q5. What is the difference between Form 15G and Form 15H?
Form 15G is for individuals below 60 years of age who expect no tax liability for the financial year. Form 15H is for senior citizens, that is, 60 years and above, who also expect no tax liability.
Q6. Can I submit Form 15G or 15H online?
Yes. Most public institutions accept online submission of Form 15G and Form 15H. That is through their official sites or through net banking where the taxpayer has an account with that bank.
Q7. What if I submitted the Form 15G or 15H erroneously but then later I have a taxable income?
If you have filed either Form 15G or 15H earlier but have a taxable income to declare, then you are supposed to file an income tax return along with depositing the amount of tax payable.
Q8. Is there any penalty for wrong submissions of Form 15G or 15H?
Yes, if it is discovered that Form 15G or 15H has been filed without genuine eligibility, law has the provision for accruing penalties for false statements in the Income Tax Act, which may further include fine to imprisonment also.
Q9. What is the frequency of submitting Forms 15G/15H?
As Forms 15G and 15H are valid for one financial year, their submissions have to be made every financial year. If the taxpayer wants to have income on a continuous basis without deduction of TDS, he will have to make new submissions at the commencement of each financial year.
Q10. Will an NRI be able to submit Form 15G or Form 15H for no TDS deductions as per section 197A?
No. Non-Resident Indians (NRIs) cannot use Form 15G or 15H. The reason behind this is that these forms belong to conditions applicable to residents alone, according to the tax definitions and requirements of the Income Tax Act.
Q11. Can joint account holders submit Form 15G or Form 15H?
Yes, joint account holders can submit Form 15G or 15H, but only the primary account holder is eligible to file these forms if they meet the criteria. The income from the account will be considered in the primary account holder's total income for TDS exemption purposes.
Q12. Are Form 15G and 15H applicable for TDS on EPF withdrawals?
Yes, if your EPF (Employees' Provident Fund) balance is being withdrawn and your total income (including EPF withdrawal) is below the taxable limit, you can submit Form 15G or Form 15H to avoid TDS deduction.
Q13. Is there a specific income threshold for submitting Form 15G or 15H?
Yes, the total income, including the interest income for which Form 15G or 15H is being submitted, must be below the basic exemption limit, which is currently INR 2.5 lakh for individuals below 60 years and INR 3 lakh for senior citizens (60 years and above). For super senior citizens (above 80 years), the limit is INR 5 lakh.
Q14. Can I submit Form 15G or Form 15H for income from recurring deposits (RDs)?
Yes, Forms 15G and 15H can be submitted for recurring deposit accounts, provided your total income remains below the taxable threshold for the financial year.
Q15. Do I need to submit Form 15G or 15H if my income is tax-exempt under the new tax regime?
Even under the new tax regime, if your total income (including interest from deposits) is below the taxable limit, you can still submit Form 15G or Form 15H to avoid TDS deductions. The conditions for submission remain the same under both tax regimes.
Q16. Can TDS already deducted be refunded if I forgot to submit Form 15G or Form 15H?
Yes, if TDS has already been deducted and your total income is below the taxable limit, you can claim a refund when filing your income tax return for that financial year.
Q17. Can I submit Form 15G or 15H to avoid TDS on fixed deposits (FDs) in a post office?
Yes, Forms 15G and 15H can be submitted to post offices to avoid TDS on interest earned from fixed deposits, provided your total income does not exceed the basic exemption limit.
Q18. Is there a time limit for submitting Form 15G or Form 15H?
While it is advisable to submit Form 15G or Form 15H at the beginning of the financial year to avoid any TDS deductions, you can submit it at any time during the financial year. However, once TDS is deducted, it cannot be undone for that particular transaction.
Q19. Can Form 15G or Form 15H be submitted for income from rental properties?
No, Forms 15G and 15H are not applicable for rental income. These forms are primarily for interest income, dividends, and specific annuities.
Q20. Can I submit Form 15G or Form 15H for insurance payouts?
No, Form 15G or 15H cannot be submitted for insurance payouts. Insurance-related tax exemptions are governed under different sections of the Income Tax Act, and payouts are generally exempt if they meet certain conditions.
Q21. Can senior citizens submit Form 15H for income from capital gains?
No, Forms 15G and 15H cannot be used to avoid TDS on capital gains. These forms are only applicable to interest, dividends, and specific other incomes, and cannot be used for capital gains tax exemption.
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