Section 194P of Income Tax: ITR Filing for Senior Citizen

To provide significant relief to senior citizens aged 75 or above, the Ministry introduced Section 194P in the Income Tax Act, 1961, through the Finance Act 2021. Effective from April 1, 2021, this section allows eligible seniors to bypass filing Income Tax Returns (ITR) for the assessment year 2022-23 by submitting a simple declaration to their bank.

What is Section 194P?

Under Section 139 of the Income Tax Act, every individual must file a return of income if their gross total income during the previous year exceeds the basic exemption limit. This requirement is crucial to ensure compliance with tax regulations.

Section 194P was introduced to make life easier for senior citizens, specifically to reduce the need for filing Income Tax Returns (ITR). This section provides significant relief for eligible senior citizens by simplifying the tax deduction process.

According to Section 194P, the specified bank is responsible for the TDS (Tax Deducted at Source) deduction for specified senior citizens. This is done after taking into account deductions under Chapter VI-A and the rebate under Section 87A.

Exemptions Under Section 194P

To qualify for exemptions under Section 194P, senior citizens need to meet certain criteria:

• Age Requirement: Must be 75 years old or older.
• Residency Requirement: Must have been a resident in the previous year.
• Income Sources: Income should solely be from a pension and interest from savings or deposits in the same bank where the pension is received.
• Declaration to Bank: The senior citizen must provide the bank with a declaration containing specific information.
• Specified Bank: The Central Government designates certain banks as “specified banks.” These banks are responsible for deducting TDS (Tax Deducted at Source) after considering deductions under Chapter VI-A and rebates under Section 87A.

Once the specified bank starts deducting taxes, seniors over 75 years old are exempt from filing income tax returns.

Applicability of Section 194P

Under Section 194P, a “specified senior citizen” is someone who has turned 75 years old or older at any point in the previous year. To qualify, they must meet the following criteria:

• They should have been a resident of India in the preceding year.
• Their income should be limited to interest and pension only.
• Interest income must be received or accrued from the same bank where their pension is being credited.

Know More About How to File TDS Return?           

Key Features of Section 194P of the Income Tax Act

Section 194P was introduced in the Finance Act of 2021 to offer some relief to senior citizens aged 75 and above, exempting them from the requirement to file income tax returns under certain conditions. Here’s what you need to know:

1. Interest Income: The interest income must come from the same bank where the senior citizen receives their pension.

2. Declaration Submission: Senior citizens need to submit a declaration to the bank, including:

• Their PAN (Permanent Account Number) and Pension Payment Order (PPO) Number.
• Details of total income.
• Deductions claimed under Sections 80C to 80U.
• Rebate eligibility under Section 87A.
• Confirmation that they have no other sources of income apart from pension and interest.

3. Specified Banks: The bank must be a specified bank, which is a banking company notified by the Central Government. These specified banks are responsible for deducting TDS (Tax Deducted at Source) for senior citizens over 75 years of age.

4. No Need to File Returns: Once the specified bank deducts the tax, these senior citizens are exempted from filing income tax returns.

Penalties for Non-Compliance with Section 194P

Section 194P aims to ease the tax compliance process for senior citizens aged 75 and above who have pension income. However, banks play a crucial role in this process and can face penalties if they fail to:

1. Deduct the appropriate TDS.
2. Maintain accurate records of the declarations provided by senior citizens.

These penalties are enforced under the Income Tax Act 1961, ensuring that banks adhere to the regulations and the process remains smooth for senior citizens.

Filing a Declaration by a Senior Citizen

For a senior citizen to benefit under Section 194P, they need to submit a declaration to their specified bank. Here’s what the declaration should include:

1. PAN and Pension Payment Order (PPO) Number.
2. Total Income: Details of the senior citizen’s total income.
3. Deductions: Information on deductions availed under Section 80C to 80U.
4. Rebate: Details of any rebate available under Section 87A.
5. Income Confirmation: Confirmation that the income is solely from pension and interest.

How is Taxable Income Calculated?

Once the senior citizen submits the declaration using Form No. 12BBA, the specified bank will calculate the gross total income (pension plus interest income). To find the net taxable income, the bank will consider the deductions, tax exemptions, and rebates the senior citizen is eligible for under Section 87A. The bank will then deduct TDS based on this net taxable income.

If the senior citizen chooses the old tax regime, the bank will request proof of deductions and tax exemptions. No investment proof is needed if they opt for the new tax regime.

Benefits for Senior Citizens Under Section 194P

After gathering all the necessary deduction details, the specified bank calculates the net taxable income and deducts the appropriate tax as TDS under Section 194P. This deducted amount is reported to the tax department and will appear in Form 26AS, just like any other TDS.

Seniors aged 75 and above won’t need to file an income tax return (ITR) if their specified bank handles the TDS deduction under this section. This provision significantly simplifies tax compliance, providing a great relief for elderly taxpayers.

Conclusion

Section 194P, introduced in the Budget 2021, provides significant tax relief for senior citizens aged 75 and above. Eligible seniors, whose income comes only from a pension and interest, benefit from simplified tax filing procedures. Instead of filing income tax returns, the specified bank deducts the applicable taxes on their behalf. This thoughtful provision ensures that senior citizens experience easier financial management and compliance with Indian tax laws, making their golden years a bit more comfortable.

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