How to avoid paying taxes on interest income?

Do you wonder why interest earned from your FDs or interest bearing securities like bonds gets reduced due to tax deducted at source? Does it irritate you that tax has been charged even though you aren't eligible to pay taxes?

• Why should I know this?: If you are like most Indians, chances are the bulk of your liquid savings are in a bank account or in an FD. Some of us are invested in bonds.
• How much is the TDS on interest from deposits and securities?: The tax on interest income is deducted at source, i.e., at the bank where you hold your deposit, or from the issuer of the bond who pays you interest. The rate of this TDS is a flat 10% if your interest income exceeds a certain limit.
• How can I avoid undue deduction from interest income?: If your analysis shows that your total income is below the taxable slab, then there are provisions in the Income Tax Act under which you legally avoid having tax deducted from your interest earned on your FDs and bonds.
• What are these prescribed forms?: Different forms are used for different sources of income and types of taxpayers.
Form 15G: Applicable for a resident individual, other than a senior citizen Form 15H: Applicable for a senior citizen
• What incomes can be declared in the above forms?: The declaration in Forms 15G and 15H can be furnished mainly if the taxpayer has income from:
Interest on securities Interest other than interest on securities, like FDs
• What should I take care of while using these forms?:
The declaration should be filed only if tax on total estimated income for the relevant year is nil. Delivery of the form to the entity deducting your TDS must be made any time before receiving the income either directly or by credit to the account. The entity to whom the declaration is given must file one copy of the declaration with Commissioner Income Tax before 7th day of next month. A false declaration is liable to prosecution and fine.

(Article courtesy: Kartik Varma, Co-founder, iTRUST Financial Advisors )

How to avoid paying taxes on interest income?