The Finance Act of 2021 introduced Section 194P to the Income Tax Act of 1961. This new section deals with the TDS (Tax Deducted at Source) obligations of specified senior citizens. The government introduced this provision to provide relief to senior citizens aged above 75 years and to make the income tax compliance process more straightforward for them.
In this article, we will discuss Section 194P of the Income Tax Act.
What does Section 194P of the Income Tax Act say?
The provision of section 194P states as-
- TDS under section 194P is deductible only in case of “specified senior citizen”.
- The specified senior citizen is obliged to submit a return with income data.
- Based on the declaration, the specified bank shall:
- Compute the total income of the said senior citizen after giving the effect of deduction available under Section 80C to Section 80U and admissible rebate under Section 87A of the Income Tax Act; and
- Deduct applicable income tax from such total income of specified senior citizen.
What do “specified senior” and “specified bank” mean?
The meaning of ‘specified senior’ and ‘specified bank’ are explained below-
Specified senior: A person will be qualified as a “specified senior” if he fulfills the following conditions:
- The senior should be aged 75 or over in the previous year.
- Senior should be domiciled in India.
- The senior should receive only two incomes, i.e. pension income; and earned interest from the specified bank from which he receives retirement income.
- The senior has submitted the required statement to the specified bank.
Specified Bank: A Specified Bank is a bank as notified by the Central Government.
Benefits of Section 194P of the Income Tax Act
Section 194P provides several benefits to specified senior citizens. The key benefits are as follows:
- Reduced Compliance Burden: The introduction of Section 194P reduces the compliance burden for specified senior citizens as they do not have to worry about TDS deductions on their pension and interest income. They can receive their income without any deductions and can pay their taxes at their convenience.
- Increased Liquidity: Specified senior citizens can now receive their pension and interest income without any TDS deductions. This increases their liquidity, and they can use their income as per their requirements.
- Ease of Tax Filing: Senior citizens who have only pension and interest income are exempt from TDS provisions under Section 194P. This makes their tax filing process more straightforward as they do not have to worry about TDS certificates and other compliance-related issues.
- Encourages Saving Habits: Section 194P encourages saving habits among senior citizens as it exempts them from TDS provisions. This encourages senior citizens to invest their income in savings schemes and other financial instruments.
Conditions for exemption under Section 194P of the Income Tax
The conditions for exemptions under the said section are as follows-
- Seniors should be aged 75 and above.
- Seniors should have “residency” in the previous year.
- He only has pension income and interest income. Interest income accrued/earned from the same particular bank in which the pension is drawn.
- The senior submits a statement with certain details (given below) to the specified bank.
- The ‘Specified Bank’ is one notified by the Central Government which will deduct TDS from senior citizens after considering deductions under Chapter VI-A and rebate under 87A.
- Once the specified bank deducts the tax for senior citizens above 75 years of age, the senior citizens will not be required to file income tax returns.
Submission of Declaration
Based on the declaration submitted by the said senior citizen, TDS would be deducted by the specified bank. However, it is important to note here that the form and manner of filing the return are not yet prescribed. The statement would condition details like:
- Total income;
- Details of the deduction are available in sections 80C to 80U;
- Rebate available under section 87A;
- A statement confirming receipt of only pension income and interest income.
Calculation of taxable income under the new section
Senior has to file a declaration in Form No. 12BBA. Once the senior citizen files the return, the bank calculates the total gross income (pension plus interest income). While calculating the net taxable income, the bank will also take into account the deductions, exemptions, and discounts available to senior citizens under Section 87A. After deducting the deductions and rebates, the bank would now deduct TDS from these citizens.
The bank will request proof of deductions and tax exemptions to which the senior citizen is entitled when submitting the return. This will be required if they opt for the previous income tax regime. When a senior citizen selects the new income tax regime, there is no requirement for proof of investment.
Statements required by specified seniors
The specified senior citizens require to make these declarations-
- Deductions available under Chapter VI-A
- Rebate available under section 87A
- They did not receive any other income apart from pensions and interest income
- Total income.
Final words
Section 194P of the Income Tax Act is a significant relief for senior citizens who have only pension and interest income as a source of income. It reduces their compliance burden and provides them with increased liquidity. This section also encourages saving habits among senior citizens. However, senior citizens must fulfill all the conditions mentioned in Section 194P to avail of these benefits. The senior citizens should consult their tax advisors before availing of these benefits to avoid any tax-related issues.
