Section 194P of Income Tax Act: Relief from ITR Filing for Senior Citizens
In recent years, the Indian government has implemented several measures to simplify the ITR filing process for senior citizens. One such significant provision is section 194P which was introduced in the Finance Act of 2021. This section offers much-needed relief to senior citizens beyond the age of 75 years.
So, in this article, we will learn about the key aspects of section 194P, including applicability, exemptions, and benefits that ensure stress-free and smooth tax compliance for senior citizens.
Table of content
What is Section 194P of Income Tax Act?
Under Section 139 of the Income Tax Act, individuals are required to file their income tax returns if their gross total income for the previous year exceeds the basic exemption limit. This requirement is key to ensuring compliance with tax laws.
To provide relief to senior citizens, Section 194P was introduced, aiming to simplify tax procedures for them. This section reduces the need for eligible senior citizens to file Income Tax Returns (ITR) by streamlining the tax deduction process.
Under Section 194P, specified banks are responsible for deducting TDS (Tax Deducted at Source) on behalf of senior citizens. The deduction takes into account eligible deductions under Chapter VI-A and the rebate under Section 87A, ensuring that tax obligations are met without requiring seniors to go through the full process of filing returns.
Applicability of Section 194P of Income Tax Act
A "specified senior citizen" under Section 194P is defined as someone who has turned 75 years of age or older during the previous year. Additionally, they must be a resident of India in that year.
To qualify for the benefits of Section 194P, the individual should have no other sources of income apart from pension and interest. The interest must be received or accrued from the same designated bank where their pension is credited.
Key Features of Section 194P of Income Tax Act
Interest income: The interest income should come from the same bank as the senior citizen receives its pension.
Declaration submission: Senior citizens must provide a declaration to their bank that includes the following details:
Their PAN (Permanent Account Number) and Pension Payment Order (PPO) Number.
Information about their total income.
Deductions they are claiming under Sections 80C to 80U.
Eligibility for a rebate under Section 87A.
A confirmation that they have no other sources of income besides pension and interest.
This declaration helps the bank ensure accurate TDS deduction and simplifies the tax filing process for senior citizens.
Specified banks: The bank must be a "specified bank," meaning a banking company that has been notified by the Central Government. These specified banks are responsible for deducting TDS (Tax Deducted at Source) on behalf of senior citizens aged 75 and above, ensuring their tax obligations are handled efficiently.
No Need to File Returns: Once the particular bank deducts the tax, these senior citizens above the age of 75 are exempted from filing the tax returns.
Benefits for Senior Citizens
Section 194P is created to decrease the tax filing burden for senior citizens who fulfill certain needs. Below are the benefits that this provision offers-
Senior citizens aged 75 years and above who fulfill certain conditions are exempted from filing an ITR. This provision reduces the complexity and effort involved in navigating tax forms, which can be challenging for the elderly.
The relief under Section 194P applies only to those senior citizens who receive income solely from pensions and interest on deposits held with the same bank. This streamlining ensures that individuals with simple income structures are not required to engage in unnecessary compliance.
For eligible senior citizens, the specified bank will automatically deduct the applicable tax (TDS) on both pension and interest income. This eliminates the need for seniors to calculate or worry about tax payments, ensuring that their obligations are met seamlessly.
Senior citizens do not need to worry about tracking tax deadlines or managing the paperwork associated with filing an ITR. The responsibility for tax deduction and compliance is shifted to the bank, significantly reducing administrative responsibilities.
Reduces the need for interaction with complex tax procedures, Section 194P simplifies the entire tax process for elderly individuals, making it more convenient and accessible. This also reduces the likelihood of errors or omissions in tax filings.
Section 194P ensures that senior citizens can focus more on their financial security and well-being, rather than on managing tax-related obligations. It provides a hassle-free tax compliance process, giving seniors peace of mind.
The provision applies to specified banks where senior citizens maintain their accounts, ensuring that the banking system provides dedicated support in implementing the tax deductions. This targeted approach makes it easier for seniors to benefit from the provision without having to switch banks or manage additional complexities.
Exemptions under Section 194P of Income Tax Act
Senior citizens must be 75 years of age or older and have been a resident of India in the previous year to qualify. Their only sources of income should be pension and interest from savings or deposits in the same bank where they receive their pension. All interest income must come from this designated bank.
The senior citizen will submit a declaration to the bank with the required details such as their PAN, Pension Payment Order (PPO) number, total income, and any eligible deductions.
A "specified bank," as notified by the Central Government, is responsible for calculating and deducting TDS for these senior citizens. After considering deductions under Chapter VI-A and the rebate under Section 87A, these banks will handle the entire tax deduction process.
Once the designated bank begins deducting taxes, senior citizens aged 75 and above will no longer be required to file income tax returns, providing them with significant relief.
Conditions for the Exemption under Section 194P
To qualify for the benefits under this provision, senior citizens must be 75 years of age or older and classified as residents in the previous year.
They should have pension income and interest income exclusively from a bank account (savings or deposits), with the interest earned from the same bank where their pension is credited.
The senior citizen will need to submit a declaration containing specific details to the bank. This bank must be a "specified bank," which is defined as a banking company notified by the Central Government.
These specified banks are responsible for deducting TDS for senior citizens, taking into account deductions under Chapter VI-A and the rebate under Section 87A.
Filing a Declaration by a Senior Citizens
A particular bank may deduct the TDS based on the declaration by the senior citizen to the bank.
The declaration should include the following details:
PAN and Pension Payment Order (PPO) Number
Total income of the senior citizen
Rebate available under section 87A
Confirmation from the senior citizen of having only pension and interest income
Penalty Due to Non-compliance with Section 194P
Section 194P is designed to simplify tax compliance for senior citizens aged 75 and above who receive pension income. However, banks play a vital role in this process and can face penalties if they fail to:
Deduct the correct amount of TDS.
Maintain accurate records of the declarations provided by senior citizens.
These penalties, enforced under the Income Tax Act of 1961, ensure that banks comply with the regulations, making the process smoother and hassle-free for senior citizens.
Conclusion
Section 194P, introduced in Budget 2021, provides substantial income tax relief for senior citizens aged 75 and above. Under this provision, eligible seniors who only receive pension and interest income are exempt from filing income tax returns (ITR), as their bank is responsible for deducting the necessary taxes on their behalf. This section simplifies tax compliance for elderly taxpayers, ensuring that tax deductions are handled smoothly.
The initiative reflects a thoughtful approach to income tax provisions for senior citizens, making it easier for them to manage their finances and meet tax obligations with minimal effort.
FAQ
Q1. Which tax regime is applied to TDS deduction under section 194P?
Once the senior citizen submits the declaration, the bank calculates their net taxable income, factoring in all eligible deductions, tax exemptions, and rebates under Section 87A. The bank then determines the TDS under Section 194P, applying the most favorable tax regime to ensure the senior citizen benefits from the available tax provisions.
Q2. What is the age limit for section 194P?
The relaxation from filing the tax returns is available to the resident senior citizens aged above 75 years and above.
Q3. What types of income are covered under section 194P?
Section 194P applies to senior citizens who receive only pension and interest income. The interest income must be accrued or earned from the same bank where they receive their pension.
Q4. How will the banks calculate taxable income under Section 194P for senior citizens?
Using the declaration provided in Form 12BBA, the bank will calculate the gross total income of these pensioners, which includes their pension and interest income. The bank will also consider any eligible deductions, tax exemptions, and rebates under Section 87A to determine their net taxable income. After factoring in these deductions and rebates, the bank will deduct the appropriate TDS for senior citizens.
Q5. Is this exemption available under both new and old income tax regimes?
Yes, senior citizens can benefit from this provision regardless of whether they choose the new tax regime or the old income tax regime. If they opt for the new tax regime, they are likely not required to submit any documents to the bank since exemptions are not available under this regime.
Q6. What is the TDS rate applicable under Section 194P?
The TDS rate applicable under Section 194P is generally 15% of the interest income earned by senior citizens. However, if the senior citizen has submitted their PAN to the payer, the TDS rate is reduced to 10%.
Q7. What if a senior citizen fails to submit their PAN to the payer?
If a senior citizen does not provide their PAN to the payer, the TDS rate applicable under Section 194P will be 20%. This rate is significantly higher than the rate that applies when the PAN is submitted. Therefore, senior citizens must ensure that their PAN is provided to the payer to avoid higher TDS deductions.
Q8. Can a senior citizen claim 80TTB in the new tax regime?
Yes, 80TTB can be claimed for senior citizens above 80 years of age. The deduction can be claimed during tax return filing. You can report the eligible interest income in income from the Other Sources section.
Q9. How much FD interest is tax-free for senior citizens?
Senior citizens can claim a deduction of up to ₹50,000 per annum on the interest earned from fixed deposits (FDs) under Section 80TTB. This deduction is exclusively available to senior citizens and is in addition to the tax deductions offered under Section 80C.
Q10. What is the tax exemption for the senior citizen saving scheme?
The senior citizen saving scheme is for five years. The option is available to extend it for three years. The account is transferable anywhere within the country. Additionally, under Section 80C of the Indian Tax Act, 1961, individuals can claim an income tax deduction of up to ₹1.5 lakh for investments made in this scheme.
Q11. How will the taxable income be calculated under the new section?
Senior citizens must submit a declaration using Form No. 12BBA. The bank will then calculate their total income, including pension and interest. They'll also consider deductions, exemptions, and rebates available to seniors. After these adjustments, the bank will deduct the appropriate amount of tax.
When filing the declaration, seniors may need to provide proof of deductions and exemptions they're claiming. This is especially true if they choose the old tax system. However, if they opt for the new tax system, they won't need to submit investment proof.
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