TDS deduction: How to reduce excess tax

Loans

Investments

Insurance

Payments

Cards

ABC Credit Cards

Download ABCD

Experience finance made simple on the new ABCD app!

Scan to Download the App

Playstore

Appstore

1800-270-7000

Aditya Birla Sun Life Insurance Company Limited

15 Jun 2023

10 mins read

When can excess TDS be deducted from your income?

As mentioned earlier, TDS is deducted at specified rates as mentioned in the Income Tax Sections. So, you receive an income after the TDS deduction. However, in some cases, the deducted TDS can be more than your tax liability.

For instance, banks deduct a TDS of 10%⁶ (20% in the absence of a PAN Card) on your interest income if it exceeds Rs.40,000 (Rs.50,000 for senior citizens). However, if your aggregate taxable income is below the threshold limit of Rs.2.5 lakhs⁷, you don’t incur any tax liability. In that case, the TDS already deducted from your interest income is the excess TDS that was paid on your behalf.

If excess TDS has been deducted from your income, you can claim a refund for the same. Just fill out your returns and claim an income tax refund for the excess TDS paid. The income tax department would verify your returns and refund the excess TDS that has been deducted.

Lowering your tax liability to claim a refund of excess TDS

A low tax liability can make you eligible for the refund of excess TDS deducted from your income. Moreover, in the case of TDS on salary, if you can claim deductions and exemptions from your salary income, the rate of TDS is also lowered.

So, here are some ways in which you can reduce your tax liability and, consequently, claim a refund of excess TDS –

Make full use of Section 80C

Section 80C⁸ of the Income Tax Act allows deductions up to Rs.1.5 lakhs on eligible investments and expenses which are as follows –

Eligible investments	Eligible expenses⁸
National Savings Certificates	Tuition fee paid for children
Public Provident Fund	Life insurance premiums
Sukanya Samriddhi Yojana	Home loan principal repayment
Senior Citizen Saving Scheme	Stamp duty and registration charges paid for a house
Equity Linked Saving Scheme
5-year fixed deposits of banks and post offices
Employee Provident Fund contributions

Ensure that you utilize the full deduction of Rs.1.5 lakhs under Section 80C so that you can lower your taxable income and the consequent tax liability.

Invest in a health insurance plan

A health insurance plan also helps you lower your tax liability besides allowing financial relief in medical emergencies. The premium that you pay for the policy is allowed as a deduction under Section 80D⁹ of the Act. The limit of deduction is given in the following table –

Details of premium payment	Available limit
Premium paid for self and/or family (spouse and/or children) when you are not a senior citizen	Up to Rs.25,000
Premium paid for self and/or family (spouse and/or children) when you are a senior citizen	Up to Rs.50,000
Premium paid for parents when parents are not senior citizens	Additional deduction up to Rs.25,000
Premium paid for parents when parents are senior citizens	Additional deduction up to Rs.50,000

Paying premium for your parents can earn you an additional deduction on the total premium paid. So, insure your parents under the health plan for higher deductions. Higher deductions mean lower taxable income and lower taxable income means lower tax liability.

Use NPS for retirement planning

The National Pension System allows you to create a market-linked retirement corpus that guarantees pension payments after maturity. What sets the NPS scheme apart is the additional tax benefit^* that it offers.
The contribution to the NPS scheme qualifies for a deduction under Section 80CCD (1)¹⁰. The limit of deduction is Rs.1.5 lakhs but it is included in the overall deduction limit of Section 80CCE¹¹.
However, section 80CCD (1B)¹⁰ allows for an additional deduction up to Rs.50,000 for NPS investments. This deduction limit is above the limit of Section 80CCE thus allowing you additional tax deduction on NPS investments.
Moreover, if your employer contributes to the NPS scheme on your behalf, you can claim an additional deduction up to 10% of your basic pay and dearness allowance. This deduction is allowed under Section 80CCD (2)¹⁰ and the deduction is available even in the new tax regime.

Donate to the causes that you believe in

Making charitable donations not only gives you internal happiness and satisfaction, but it can also help you lower your tax liability. The income tax act allows all donations to recognized charitable causes as deductions from your taxable income. The deduction is allowed under Section 80G¹² and you can file a claim of 100% or 50% deduction of the amount donated.
Here’s a look at some of the recognized donations that qualify for a deduction –

Donations that enjoy a 100% deduction of the amount without any upper limit	Donations that allow a 50% deduction
Prime Minister’s National Relief Fund National Defence Fund of the Central Government National Cultural Fund National Sports Fund National Children’s Fund Assistance Fund for National Illness National Fund for Control of Drug Abuse Technological Development and Application Fund	Drought Relief Fund of the Prime Minister Foundation of Rajiv Gandhi Trust of Indira Gandhi Memorial Fund for Jawaharlal Nehru Memorial

There are other donations that have an upper limit of 10%¹² of the adjusted amount of the gross total income.
Check the list of eligible donations and then donate to the causes that you believe in enjoying tax benefit in the process.

Maximize deduction on the home loan interest

If you have a home loan, you can choose to claim deduction on the interest paid on the same. The deductions¹³ are available as follows –

Interest paid on the home loan is allowed as a deduction under Section 24. The deduction limit is Rs.2 lakhs and you can thus claim a deduction for an under-construction property (provided the construction is completed within 5 years) as well as for a ready-to-move-in flat.
If you are a first-time home buyer and you avail of a home loan within 31st March 2022, you can also claim an additional deduction for the interest paid. The additional deduction is allowed under Section 80EEA up to Rs.1.5 lakhs provided the stamp duty value of the house is up to Rs.45 lakhs.

So, overall, you can file a claim a deduction up to Rs.3.5 lakhs through a home loan.

Submit Form 15G/H to avoid TDS

This is for those taxpayers whose taxable income is within Rs.2.5 lakhs. Since your income is within the threshold limit of Rs.2.5 lakhs⁷, the TDS deducted from your bank deposit can be avoided altogether. To avoid this TDS and eliminate the hassle of filing the income tax return to claim TDS refund, you can simply submit Form 15G or Form 15H (for senior citizens) to the financial institution. Basis this form, no TDS would be deducted from the deposit interest allowing you to save your income from TDS deductions.

The Income Tax Act allows a list of avenues to lower your tax liability. Explore these avenues and lower your tax liability. With a reduced tax liability, you can choose to claim a refund of the excess TDS deducted from your income and save taxes. Your disposable income would increase allowing you to step up your savings too and meet your financial goals easily.