Insertion of Section 194P in the Income Tax Act

Ashish M. Shaji

30 Jul, 2021

The Finance Act 2021 inserted a new section to provide relief to the senior citizens who is 75 years of age or more from the burden of filing the return of income. This section exempts a resident senior citizen from filing return of income if such person has the specified income and tax thereon is deducted by bank. Let’s discuss more on this newly inserted section 194P.

What is Section 194P?

This section was introduced in the Union Budget 2021 with a view to provide a conditional relief to senior citizens of 75 or more years of age from filing ITR. Section 139 of the Income Tax Act governs the filing of ITR by every individual with an income over the basic exemption limit.

The Union Budget 2021, in order to provide relief with respect to compliance burden for filing returns, exempted senior citizens from filing ITR but subject to certain conditions. These conditions are discussed below.

Conditions for Exemption under Section 194P

The following conditions should be satisfied to be exempted from filing the return of income:

• The Senior citizen should be a resident in India;
• His/her age during the relevant previous year should be 75 years or more;
• His/her income must include only pension and specified interest income;
• The interest should be received/receivable from any account maintained by such individual in the specified bank;
• His/her pension income should be received in the same specified bank;
• The senior citizen shall submit a declaration having some details to the specified bank;
• The bank is a specified bank, and such banks shall be responsible for TDS deduction of senior citizens after allowing deductions under Chap. VI A and rebate under section 87A.

When the specified bank deducts tax for senior citizens of more than 75 years of age, then there is no need to furnish ITR by senior citizens.

Who is specified resident senior citizen?

The Income Tax Act to compute tax classifies a resident senior citizen to two categories:

• 60 years or more;
• 80 years or more.

Now there is another category of resident senior citizen whose age is 75 years or more during the previous year. Therefore a resident senior citizen shall be covered under this if he completes 75 years of age on or before 31^st March 2022.

How to file a declaration by senior citizen?

The specified bank is required to deduct TDS on the basis of the declaration submitted by the senior citizen to the bank. Such declaration must contain the following details:

• Total income of the senior citizen;
• Rebate available under Section 87A;
• Deductions availed under Section 80C to 80U;
• Confirmation from such person of having only pension and interest income.

Computation and deduction of tax by bank

This Section 194P moves the obligation of computing the total income of the senior citizen on banks. Banks shall compute the income after giving effect to the deduction allowable under Chap. VI A and the rebate under section 87A.

The bank would then compute the total tax on such income at the rate in force and accordingly deduct the tax. The employer won’t be liable to deduct the tax under Section 192^[1] from the pension scheme.

Benefits for the senior citizen under Section 194P

When the specified bank deducts TDS under this section, the provisions of section 139 shall not apply to senior citizen of 75 years of age or more. It means that if the specified bank deducts TDS under this section, then the senior citizen don’t have to file their Income Tax Return.

Summarizing the provisions of 194P

The table made below summarizes the provisions of this section.

Conclusion

It may be noted that the provisions of section 194P is effective from 1st April 2021. If the prescribed conditions are satisfied, then the senior citizen can be exempted from filing ITR. It is essential to know the tax provisions to get the best out of the offers available to taxpayers. However, there are a few other queries that have not been clarified yet with respect to this section.

Read our article:Understanding Section 206AB of Income Tax Act 1961