Exemption to some senior citizens from filing the Income Tax Return!! - Let's decode the provision

In the Union Budget 2021, some specified senior citizens have been exempted from filing the Income Tax Return (ITR). So …. Is this exemption is available to all the senior citizens? Which kind of income should an individual have to claim this exemption from return filing? Does this senior citizen require to pay income tax and if yes, then how he/she will pay tax, when he/she does not file his /her ITR?

Today we will find the answers to all these questions, because we are going to discuss the relevant provision in a very simple language.

In Union Budget 2021, a new Section 194P (TDS in the case of specified senior citizen) has been inserted to The Income Tax Act, 1961 (the Act). Due to this newly inserted Section 194P, some of the senior citizens can claim exemption from filing the ITR. The simplified presentation of the relevant provisions of this section is as under:

(1) This provision is applicable with effect from 1^st April, 2021. 

(2) Normally in Income Tax Act, a person is considered a senior citizen when he/she is 60 years or more at any time during the relevant previous year. But this exemption from return filing will be applicable to a ‘specified senior citizen’, means an individual who is 75 years or more at any time during the relevant previous year.

(3) He/she should be a resident in India. If an individual is non-resident as per the provision of the Act for a particular relevant previous year, then he/she will not be eligible to claim exemption from ITR filing under this particular section.

(4) The specified senior citizen will be exempt from filing ITR if he/she earns only two types of income: (i) pension income and (ii) interest income. Moreover, interest income should have been received/receivable from the same bank only, in which he/she receives the pension income. Let’s understand this point with the help of an example.

Mr. X is 79 years old and he earns pension income. He has a saving bank account with State Bank of India, in which his pension gets deposited every month. He also has a Fixed Deposit (FD) with the State Bank of India itself. Therefore, Mr. X earns pension income and interest from saving account and interest on FD also. Here, both the types of interests are received from the same bank i.e. State Bank of India and he also receives his pension in the same bank. Therefore, Mr. X can claim exemption from filing the ITR, as per the provision of Section 194P.

Now, suppose Mr. X is also having one saving account and/or FD account with Bank of Baroda, then he will not be eligible to claim this exemption from return filing, because he is earning interest income from any account maintained with the bank (BOB) other than the one in which he receives his pension (SBI).

Moreover, if such specified senior citizen has any income other than pension or interest; for example income from salary, business or profession, capital gain, rent income, dividend, interest from any bonds or debentures, etc. then he/she will not be able to claim any exemption from return filing under this section 194P.

(5) If a specified senior citizen satisfies all the conditions mention under section 194P and wants to claim exemption from filing ITR, then he/she has to furnish a declaration in prescribed form to the bank. Then the bank will calculate the tax on the total income (pension and interest income) at the rates in force. The bank will also consider the deduction u/s. 80C to 80U (e.g. life insurance premium, medical insurance premium, investment in PPF or ELSS, etc.), as per the details provided. The tax so calculated will be deducted by the bank from the total income of that specified senior citizen. It means, that even if the specified senior citizen is not required to file ITR as per Section 194P, he is liable to pay the taxes at the rates applicable and he/she will pay such taxes in the form of TDS, which is deducted from his/her income by the bank.

If such specified senior citizen opts for new / alternative tax regime (which has an option to pay tax at lower rates with no deduction available), then also section 194P is applicable and the bank will deduct the TDS from his/her income accordingly. 

(6) The time when the TDS will be deducted by the bank u/s 194P, has not been specified in the section. 

(7) Can a specified senior citizen file his/her ITR even if he/she satisfies all the conditions mentioned above? The answer is yes, the specified senior citizen can file his/her ITR if he/she wishes to do so. To claim exemption under section 194P from filing ITR is not mandatory.

From the above discussion, it is clear that not all the senior citizens are exempt from filing their ITRs. This section may have a very limited applicability, because nowadays, many senior citizens have more than one savings and FD accounts with different banks. Many senior citizens, who are 75 years or more, may also have dividend income, capital gain, and interest on bonds or even rent income of a property. But if an individual satisfies all the above conditions, then he/she can claim exemption from filing ITR u/s 194P, if he/she wishes to do so. 

I hope that this write up will help you understand this new provision and you will be able to decide whether you fall in a category of a specified senior citizen and will be exempt from filing your ITR.