You can prevent tax deducted at source on your income in several ways: keep payments below the statutory threshold for that section, file Form 15G or Form 15H when you owe no tax for the year, obtain a lower or nil deduction certificate under Section 197, or fall within a category the Income Tax Act exempts entirely. Which route applies depends on your age, your income level, and the type of payment. TDS exemptions save you from chasing refunds later, but each one has conditions, and a missing or inoperative PAN will undo any of them.
Threshold Limits That Stop TDS Automatically
The simplest exemption needs no paperwork from you. When a payment stays under the threshold set for its section, the payer is legally barred from deducting tax. Tracking the threshold is the payer’s job.
For bank interest, post office interest, and interest from co-operative societies under Section 194A, TDS applies for FY 2026-27 only when interest from a single institution crosses ₹50,000 in the year. Senior citizens aged 60 and above get a higher limit of ₹1,00,000.1Income Tax Department. TDS Rates Interest paid by anyone other than a bank, co-operative, or post office carries a much lower threshold of ₹5,000.2Indian Kanoon. Section 194A in The Income Tax Act, 1961
Contractor payments under Section 194C trigger TDS when a single payment exceeds ₹30,000, or when total payments to the same contractor cross ₹1,00,000 during the financial year, even if each individual payment stays below ₹30,000.
Rent under Section 194I now has a threshold of ₹6,00,000 per year, raised from the earlier ₹2,40,000 by Union Budget 2025 with effect from FY 2025-26. Many smaller landlords no longer face upfront TDS at all.
Professional and technical fees under Section 194J carry a threshold of ₹50,000 for the financial year, covering legal, medical, engineering, and similar services.
If a payer deducts TDS even though you’re below the threshold, the only route to recovery is filing your income tax return and claiming a refund.
Form 15G and Form 15H: Declaring Zero Tax Liability
When your income is low enough that you’ll owe no tax for the year, you can stop TDS in advance by giving the payer a signed declaration. The Act provides two forms, and the eligibility rules differ in a way that trips people up.
Form 15G is for individuals and Hindu Undivided Families below the age of 60. Two conditions must both be met: your estimated tax liability for the full year must be zero, and your total income must be below the basic exemption limit. Meeting only one isn’t enough. If your gross income exceeds the exemption limit but deductions under Chapter VI-A reduce your tax to nil, Form 15G still won’t work for you.
Form 15H is only for senior citizens aged 60 and above, and it has a single condition: your estimated tax for the year must be zero. There’s no separate requirement that gross income stay under the exemption limit. That’s a real advantage, because a senior citizen can have higher gross income and still owe nothing after the higher exemption and available deductions are applied.
Submit the form separately to every payer. Three fixed deposits at three banks means three forms. Each requires your PAN, all income sources, estimated total income for the year, and the specific account or deposit numbers producing the income. Most banks now accept the declaration through their online banking portal.
When to File and How Long It Lasts
File at the start of the financial year, or before the first interest payment for the year is credited, whichever comes first. A mid-year submission stops TDS from that point forward but cannot claw back deductions already made. The declaration is valid for a single financial year, so a fresh one goes in every April.
What a False Declaration Costs
Filing Form 15G or 15H when you don’t qualify is a false statement under Section 277 of the Income Tax Act. Where the tax that would have been evaded exceeds ₹1,00,000, the punishment is rigorous imprisonment of six months to seven years plus a fine. For smaller amounts, imprisonment runs from three months to three years. The Income Tax Department cross-checks these declarations against your actual ITR, and mismatches produce automated notices.
Section 197 Certificates for Lower or Nil Deduction
Form 15G and 15H only help when your tax liability is zero. If you do owe some tax but the standard TDS rate would withhold far more than you’ll ultimately owe, Section 197 offers a different route: a certificate authorizing the payer to deduct at a lower rate, or nothing at all.
This comes up often for freelancers and consultants. A professional receiving large project payments faces 10% TDS under Section 194J, but after business expenses and deductions their effective tax rate might be 2 to 3%. Without a Section 197 certificate they’re overpaying every month and waiting for a refund.
The application is Form 13, filed with the Assessing Officer who has jurisdiction over your case. You’ll need to show, with figures, why the standard rate exceeds your actual liability. The officer looks at your income estimates, filing history, and current position before issuing the certificate. Once approved, you share it with each payer, who then deducts at the rate specified.3Income Tax Mumbai. Application Under Section 197
Certificates are valid for one financial year. You can verify one on the TRACES portal using the certificate number, the deductee’s PAN, and the financial year. Apply early in the year, because the first few months of payments will otherwise face full-rate deduction while your application is pending.
Entities That Are Exempt Entirely
Section 196 lists payees from whom no TDS is ever withheld, regardless of the amount:4Indian Kanoon. Section 196 in The Income Tax Act, 1961
- The central or state government
- The Reserve Bank of India
- Corporations established under a Central Act whose income is exempt from tax under existing law
- Mutual funds specified under clause 23D of Section 10, for interest, dividends on their securities or shares, and other income accruing to them
These bodies either owe no income tax or operate under separate fiscal rules. If you’re paying one of them, no withholding is required and no certificate is needed from the recipient.
PAN Is the Precondition for Every Exemption
Section 206AA overrides everything above if the payee doesn’t furnish a PAN. Tax is then deducted at the highest of three rates: the rate in the relevant section, the rate in the Finance Act, or a flat 20%.1Income Tax Department. TDS Rates In practice it’s almost always 20%, since most TDS sections prescribe 10% or less.
An inoperative PAN counts the same as no PAN. If your PAN isn’t linked to Aadhaar and has been deactivated, the payer must apply the elevated rate. Before filing Form 15G, Form 15H, or a Section 197 application, confirm on the Income Tax e-Filing portal that your PAN is active and Aadhaar-linked. Without a valid PAN the payer is legally required to disregard your declaration and deduct at the default higher rate.
Cash Withdrawals Under Section 194N
Section 194N puts TDS on large cash withdrawals from banks, co-operative banks, and post offices, and the threshold depends on whether you’ve been filing your returns:
- If you’ve filed an ITR for any of the three preceding assessment years, TDS at 2% applies only on cash withdrawals above ₹1 crore in the financial year. Co-operative societies get a higher limit of ₹3 crore.
- If you haven’t filed for any of the three preceding years, TDS starts at withdrawals above ₹20 lakh at 2%, and rises to 5% above ₹1 crore.
Filing your return every year, even when no tax is due, keeps you in the higher-threshold bracket.5Income Tax Department. View TDS on Cash Withdrawal Under Section 194N FAQs
Recovering TDS When It Was Already Deducted
If prevention didn’t work and tax has already been withheld, the only recovery route is your income tax return. Do it in this order.
Check Form 26AS on the e-Filing portal, which shows every TDS entry reported against your PAN. Navigate to e-File, then Income Tax Returns, then View Form 26AS.6Income Tax Department. Online View Through E-Filing Website If a TDS entry is missing or wrong, ask the deductor to file a correction in their TDS return before you file yours. Sometimes a payer deducts the tax from your payment but never deposits it, so it never shows up in 26AS. That’s the payer’s liability, but the refund won’t come through until the deposit is corrected.
File your ITR for the relevant assessment year, claiming the TDS credits from Form 26AS. E-verify the return through Aadhaar OTP, net banking, or by sending a signed physical copy to CPC Bengaluru. Refund processing starts only after e-verification, and the credit generally reaches your bank in four to five weeks.7Income Tax Department. Refund Status User Manual
Refunds most often fail for practical reasons: PAN not linked to Aadhaar, a bank account not pre-validated on the portal, a name mismatch between PAN and bank records, or a wrong IFSC. Pre-validate your bank account before filing.