Section 197A of the Income Tax Act: A Guide to No TDS Deduction for Low-Income Earners

Introduction

Tax Deducted at Source (TDS) is a mechanism introduced by the Income Tax Department of India to collect taxes at the very source of income. It ensures that tax is deducted from the income at the point of origin, and it is paid to the government, thereby reducing the burden of paying a lump sum amount at the end of the financial year. However, there are instances where the income earned by individuals is below the taxable limit, and thus, they are not liable to pay any tax. In such cases, deducting TDS would be unfair. Section 197A of the Income Tax Act addresses this by allowing certain individuals to receive income without any TDS deduction.

Understanding Section 197A

Section 197A provides an exemption from TDS deduction in certain cases. It primarily applies to individuals whose income is below the taxable threshold. The section empowers the income recipient to submit a declaration in the prescribed form to the payer, stating that their total income is below the taxable limit, and therefore, no tax should be deducted on their income.

Key Provisions of Section 197A

Form 15G and Form 15H:

• Form 15G is meant for individuals below the age of 60 years (non-senior citizens) and Hindu Undivided Families (HUFs) who wish to claim no TDS on their income.
• Form 15H is meant for senior citizens (60 years and above) who want to claim no TDS on their income.

Eligibility Criteria:

• For Form 15G: The individual must be a resident of India, and their total income must be below the taxable limit. Additionally, the tax on the total income should be nil.
• For Form 15H: The individual must be a resident senior citizen, and their total income must be below the taxable limit.

Declaration:

• The declaration must be submitted to the payer of the income, such as banks, companies, or other entities responsible for deducting TDS.
• The forms must be submitted at the beginning of each financial year for which the income is earned.

Verification by the Payer:

• The payer is required to ensure that the declaration is complete and correct before accepting it and not deducting TDS.

Benefits of Section 197A

• Relief to Low-Income Earners: Individuals whose income is below the taxable limit are not unnecessarily burdened with tax deductions, which they would otherwise have to claim as a refund.
• Simplified Process: The process of submitting Form 15G or Form 15H is straightforward and helps in avoiding the complex procedure of claiming TDS refunds later.
• Cash Flow Management: For individuals who rely on regular income from interest or other sources, non-deduction of TDS ensures better cash flow management without the hassle of waiting for refunds.

How to Submit Form 15G and Form 15H

• Offline Submission: Forms can be collected from the bank or financial institution and submitted physically after filling them out.
• Online Submission: Many banks and financial institutions provide an online facility to submit these forms through their websites or mobile apps.

Consequences of Wrong Declaration

It is important to note that providing false information in Form 15G or Form 15H can lead to penalties and prosecution under the Income Tax Act. Hence, individuals must ensure that they meet all the criteria before submitting these forms.

Conclusion

Section 197A of the Income Tax Act plays a crucial role in providing relief to individuals with incomes below the taxable limit from TDS deductions. By allowing the submission of Form 15G and Form 15H, it ensures that these individuals can receive their income without any deductions, thereby simplifying their tax compliance and improving cash flow. However, it is imperative to use these forms responsibly and provide accurate information to avoid any legal repercussions.

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