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TDS on payments from NSS, 1987 — when is it spared?

I am a senior citizen having an account under National Savings Scheme, 1987. As I was in need of drawings to the extent of about Rs. 1 lakh during the year, I approached the Teynampet (Chennai) Post Office, where I have the account. I was told that there was a limit of Rs. 50,000 for annual withdrawal from the account and that such withdrawal would be permitted without tax deduction, if I filed Form 15-I. According to my information, there is no limit either for withdrawal or in filing self-declaration for senior citizens, who are required to file Form 15H, which has since replaced Form 15-I. My attempt to have the matter clarified at the counter at the Head Post Office at Mylapore did not help, since the understanding at the branch office was repeated here as well. I am certain that there is some mistake in the interpretation adopted at the post office counters. Kindly clarify.

Section 80CCA, which permitted deposit in National Savings Scheme 1987, as an annual deduction with exemption for interest as well, was in vogue from April 1, 1987 to March 31, 1991. The amount, including interest, was taxable on withdrawal adopting EET pattern of taxation.

Sec. 194EE specifically provides for tax deduction at source at 20 per cent, subject only to a self-declaration of nil liability under Sec. 197A of the Act, which inter alia covers Sec. 194EE as well. Rule 29C framed under the Sec. 197A has been amended by Income-tax (Fourteenth) Amendment Rules, 2003 with effect from August 1, 2003 prescribing for account holders Form 15G for withdrawal without tax liability with a special Form 15H for senior citizens.

It is because for payees other than senior citizens, the facility of Form 15G is not available, if the total payment exceeds the exemption limit. The minimum exemption limit was Rs. 50,000 from assessment year (AY) 2000-01 to AY 2005-06 and was enhanced to Rs. 1 lakh from AY 2006-07, so that Form 15G could now be given by an account-holder up to withdrawals of Rs. 1 lakh.

In the case of senior citizens, there is no such limit, so that the senior citizen could file Form 15H even if the withdrawal exceeds Rs. 1 lakh, if he declares in Form 15H his total income as not liable to tax. This concession has been given to spare him from the ordeal of tax deduction at source, if he declares the income as not liable to tax. This will be evident from the fact that in Form 15G, the declaration besides certifying that the tax payable is nil has also to state that the aggregate amounts liable for tax deduction (including Sec. 80CCA) does not "exceed the maximum amount which is not chargeable to income-tax" in Paragraph 4 of Form 15G. A similar clause is absent for senior citizens in Form 15H.

In fact, the Board has clarified the new limit for Form 15G and Form 15H in Board Circular F.No. 2/8/2005-NS-II dated June 23, 2006 in following words:

"(i) An individual resident in India of 65 years of age or above may furnish a declaration in Form No. 15H to the bank/ Post Office if the tax on the estimated income for the financial year is nil.

(ii) A declaration in Form No. 15G can be furnished by a depositor of less than 65 years of age, if (a) the tax on the estimated total income for the financial year is nil, and (b) the aggregate amount of interest credited or paid or likely to be credited or paid during the financial year is not more than the maximum amount which is not chargeable to tax (Rs. 1 lakh for male taxpayers and Rs. 1.35 lakh for female taxpayers)."

It may be seen, that a limit for Form 15G has been prescribed and not for Form 15H. This Circular is reiterated in Press Release dated June 23, 2006.

As for the information received by the reader, that the Post Office requires declaration in Form 15-I, the correct position is that, Form 15-I and various other Forms, which were then separate for each category of income has now been consolidated in Form 15G, so that Form 15-I is no longer in vogue on or after June 21, 2002, in view of the amendment made under Rule 29C. Post offices, which fail to deduct tax on this defunct Form (Form 15-I), may well be asked to make good the omission with interest and possible penalty under Sec. 201 of the Act.

There is apparently some confusion for the Post Office in understanding the limit for withdrawal without tax deduction at source under Form 15G, which was Rs. 50,000 from AY 2000-01 to AY 2005-06 as placing a ceiling on the withdrawal itself. National Savings Scheme, 1987, which continues without any amendment till date reads as under:

"(4) Withdrawal will be permitted only once in a year, provided that the amount of such withdrawal shall not exceed the balance at the end of the fourth preceding financial year, less withdrawals, if any, already made".

The amount standing at the end of the fourth preceding year less withdrawals made thereafter is alone the limit, such withdrawal being allowed only once in a year. There is, therefore, no bar to the reader drawing Rs. 1 lakh, if his balance at the end of the fourth preceding year is higher than Rs. 1 lakh.

It is clear from the complaint that the Post Office staff is not familiar with either the Scheme or the requirements regarding tax deduction as amended from time to time.

It is necessary that Post-Masters General update the instruction to the post offices in the light of the development in law.

S. Rajaratnam

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