TDS usually constitutes a lion’s share of about 47% of the gross direct tax collections
A press release issued by the Central Board of Direct Taxes (CBDT) on 11 March stated that India’s gross direct tax collection for FY23, as of 10 March, stood at ₹16.68 trillion, indicating a substantial increase of 22.58%, vis-à-vis the previous fiscal. A major chunk of this tax collection is via tax deducted at source (TDS).
As per CBDT’s earlier press releases, TDS usually constitutes a lion’s share of about 47% of the gross direct tax collections. And for the coming fiscal 2023-24, the contribution of TDS in the total direct tax collections will increase phenomenally, courtesy an amendment in the finance bill that mandated the discontinuance of exemption in respect of TDS deduction on interest income earned on listed debt securities. Accordingly, TDS will now be deducted at 10% on interest income earned on listed debt securities with effect from 1 April. Another amendment provided for an increase in the threshold income limit of rebate under Section 87A from the existing ₹5 lakh to ₹7 lakh, in the new tax regime, with effect from 1 April.
Now, the interplay of these two amendments may result in some paradoxical budgetary dilemmas for individuals earning an annual income up to ₹7 lakh in FY24 and onwards, and having accumulated investments in some listed debt securities, like listed debentures or bonds and even in bank fixed deposits (FDs).
Uptill FY23, any interest income earned on listed bonds or debentures was exempt from TDS deduction, but now with the budget amendment, any such interest income in excess of ₹5,000, will come under the clutches of TDS deduction.
So, while such individuals will be exempted from income tax by way of rebate under Section 87A, they will face deduction of TDS at 10% on the interest income earned on investments in listed bonds or debentures, if it exceeds ₹5,000. For claiming refund of such TDS, such individuals will have to wait for an entire year, till the time their income tax returns (ITRs) get processed by the department.
Similar dilemma will also be faced by individuals having annual incomes up to ₹7 lakh, and earning some interest income on FDs. The banks deduct TDS at 10% on any interest income exceeding ₹40,000 ( ₹50,000 for senior citizens), in a year, earned on FDs.
To avoid this undue hardship, the first thing which individuals should do is to submit their self-declarations, in prescribed forms 15G or 15H, on the commencement of FY24. These forms, which the recipients of interest income may submit to their respective interest income payers, either electronically or even manually, submit that in the absence of any income tax liability on their respective incomes, as their total income is either below the basic exemption limit (which for FY24 and onwards is ₹3 lakh in the new regime), or is up to the threshold rebate limit of ₹7 lakh, under Section 87A of the Act, in the new regime, there is no requirement of deduction of TDS on their interest income.
Form 15G is applicable for resident individuals under the age of 60 and can be submitted only if the interest income is below the basic exemption limit. Form 15H is applicable for resident senior citizens, aged 60 years and above. It can be submitted even if the interest income is above the basic exemption limit, but the total income after claiming deductions, is either below the basic exemption limit or is up to the threshold rebate limit of ₹7 lakh in the new regime.
Based on such self-declaration forms, the banks and corporate entities issuing listed bonds or debentures will not deduct TDS on interest income.
Thus, by having an informed and proactive approach, and timely submission of the self-declaration forms at the beginning of the FY24 itself, the majority of the middle-class individuals can protect their budgetary kitties from the clutches of tedious TDS liability.
Mayank Mohanka is the founder of TaxAaram India, and a partner at S M Mohanka & Associates.
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