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December 6, 2020

TDS on Payments in respect of Deposit under National Savings Schemes

by CA Shivam Jaiswal in Income Tax

TDS on Payments in respect of Deposit under National Savings Schemes

National savings schemes are savings instruments launched or backed by the government and operated via authorised financial institutions and other entities. The primary objective of such programmes is to mobilise savings and help individuals build a substantial corpus eventually. Further, the rates of return under such schemes are revised frequently while centralised backup makes them safe investment options. Section 80CCA of the Income Tax Act pertains to the deduction in respect of deposits under National Savings Scheme or payment to a deferred annuity plan.

According to Section 80CCA(2), where any amount:

  1. standing to the credit of the assessee under the scheme in respect of which a deduction has been allowed, together with the interest accrued on such amount is withdrawn in whole or in part in any previous year, or
  2. is received on account of the surrender of the policy or as annuity or bonus in accordance with the annuity plan of the Life Insurance Corporation in any previous year,

an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee of that previous year in which such withdrawal is made or, as the case may be, amount is received, and shall, accordingly, be chargeable to tax as the income of that previous year.

Is TDS applicable on the above income?

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payments. The deduction of tax at source or TDS has been very helpful in the collection of taxes in the country by targeting the source of income itself.

The question arises that when amount is paid to any assessee under Section 80CCA, will TDS provisions be applicable on the same? Section 194EE of the Income Tax Act pertains to TDS on Payments in respect of Deposit under National Savings Scheme (NSS). Let us learn about the TDS provisions on amount received under Section 80CCA in this article.

Who is required to deduct TDS under Section 194EE?

The person responsible for paying to any person any amount standing to the credit of such person under National Savings Scheme under section 80CCA together with interest accrued thereon, shall deduct income-tax thereon on such amount at the time of its payment.

When is TDS deducted under Section 194EE?

Time of deduction under Section 194EE is when the payment is made under Section 80CCA

What is the rate of TDS under Section 194EE?

  • Rate of TDS under Section 194EE is 10%. (7.5% w.e.f. 14.05.2020 to 31.03.2021)
  • If the recipient does not furnish his PAN to the deductor, tax will be deducted at the rate of 20%.
  • PAN of the deductee should be mentioned in any correspondence and document which is exchanged between the deductor and deductee.

When is TDS not deductible under Section 194EE?

In the following situations, tax is not deductible under Section 194EE:

  • Where the amount of payment or the aggregate amount of payments in a financial year is less than Rs. 2,500.
  • Where the payment is made to the heirs of the deceased assessee (depositor)
  • If a declaration is submitted under section 197A by the recipient to the payer

What is the declaration under Section 197A?

  • Section 197A provides for any individual, not being a firm or a company, to apply for an exemption of TDS deduction on his/her income from interest on deposits with the banks in India if such income is below the taxable limit.
  • As per Section 197A, individuals below the age of 60 years can submit a declaration utilizing Form 15G.
  • Whereas the individuals above the age of 60 years (senior citizens) can submit using Form 15H. 
  • Moreover, it is to submit a declaration from the exemption of TDS on their interest income.
  • These forms can also be submitted to request for TDS exemption on withdrawal of EPF, Insurance commission earned rental income and income from corporate bonds and post office deposits.

What is the mode of submission of Form 15G and Form 15H?

  • The recipient of income can submit Form No. 15G (for senior citizen Form No. 15H) to the payer of income. It can be furnished in paper format.
  • Alternatively, it can be furnished electronically after duly verifying through an electronic process (the facility of electronic furnishing Form No. 15G/15H is provided on the website of different banks/payers).
  • The declarant shall mandatorily quote his/her PAN in Form No.15G/15H in accordance with the provisions of section 206AA(2).

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