Are senior citizens exempt from filing ITR: Analysis

Income tax compliance may proof to be a compliance burden for senior citizens who are in the later stages of their lives i.e. more than age of 75 years. Acknowledging the same, The government of India have provided with the various relief measures in Finance Act, 2021 for senior citizens, which also included the exemption from filing income tax returns (but there are some specific conditions for the same).

Some of the accountants or people whose parents are senior citizens are unaware of the same, hence I decided to choose this topic to write an article exploring these exemptions, as well as the related provisions as per the income tax act, and the steps how these senior citizens can avail these benefits as provided in that finance act.

Before we start, first of all let’s discuss who are senior as well as super senior citizens as per the income tax act? Yes, you read it right, both are different as per the act

Who is a senior citizen?

A senior citizen is defined as an individual who is a resident in India and aged 60 years or more but less than 80 years at any time during the financial year.

After reading above you may have guessed right! A person who is a resident individual and is exactly aged 80 years or more than that during the financial year is defined as super senior citizen and this benefit is specifically for super senior citizen and people approaching this status.

Before we continue further, you might be thinking that whether government have exempted super senior citizens from tax?

Answer is no, to understand how these super senior citizens will pay tax let us discuss a latest TDS section named section 194P which provided exemption for senior citizens above 75 Years

Section 194P, introduced by the Finance Act, 2021, this is a landmark provision which is aimed at simplifying tax compliance for senior citizens and was effective from 1st April 2021, yes it came around three years ago. This section eliminates the need for senior citizens aged 75 years and above to file ITRs if they meet specific conditions.

Now you might be wondering what are those conditions?

So let’s discuss below:

Conditions for Tax Compliance Under Section 194P for Senior Citizens Aged 75 and Above

First condition is the age and residency that means the individual must be 75 years or older during the financial year and also that individual must be a resident in India, this benefit is not available for non residents, will be happy if my readers comment the conditions of being resident under this article

Second and the most important condition is the source of income people or citizens who find themselves eligible for the first condition, must be aware of this that you must have only pension income and/or interest income (any type of interest income) also the interest income should be earned from the same bank where the pension is credited.

Third condition is regarding specified bank which means the pension and interest income must be received through a bank notified as a “specified bank” by the Central Government which is either a banking company or a scheduled bank

Last condition is submission of declaration which means the senior citizen must submit a declaration in Form 12BBA to the specified bank, This declaration enables the bank to compute the taxable income, deduct applicable TDS (Tax Deducted at Source), and ensure compliance with tax laws, we will discuss this in detail at later part of article.

Once these conditions are met, the senior citizen is not required to file an ITR, as the bank takes care of the tax computation and deduction, but in today’s time its tough to believe a senior citizen don’t have any rental income, as it is not covered in this section

Now, how does the bank handle tax deductions?

The specified bank as we discussed above, works on simplifying the compliance for eligible senior citizens by their income computation where the bank calculates the senior citizen’s total taxable income, considering their pension income, interest income earned from the same bank, deductions available under chapter VI-A (such as Section 80C and 80D) as well as rebates under section 87A

Along with that bank also calculates TDS deduction, though TDS is no more deducted on pension income by government, but based on the calculated taxable income, the bank deducts the appropriate amount of TDS, ensuring that the individual’s tax liability is fully settled helping these senior citizens helping them in eliminating all further compliances as the tax liability is discharged through TDS, eliminating the requirement for the senior citizen to file an ITR.

Now what are other key provisions that benefit senior citizens?

First one is increased basic exemption limits, The basic exemption limit for senior citizens is higher than that for individuals below 60 years like for senior citizens (60–80 years) the income up to Rs. 3,00,000 is tax-free and for super senior citizens (80+ years), the income up to Rs. 5,00,000 is tax-free, also the senior citizens with a taxable income of up to Rs. 5,00,000 can claim a rebate of Rs. 12,500, effectively eliminating their complete tax liability.

Next benefit is deductions under chapter VI-A where a senior citizens can claim various deductions to reduce their taxable income like section 80C for investments in schemes like PPF, SCSS, and NSC (up to Rs. 1,50,000), Section 80D for health insurance premiums (up to Rs. 50,000 for self as well as family, along with additional Rs. 50,000 for parents above 60 years) and Section 80TTB for deduction of up to Rs. 50,000 on interest income from savings accounts, fixed deposits, and recurring deposits.

Also for senior citizens there is the exemption from advance tax where a senior citizens without business income or income under head profit and gains from business or profession are exempt from paying advance tax. Their tax liability is discharged through self-assessment tax or TDS.

What is the declaration in Form 12BBA?

Form 12BBA is a self-declaration form that is submitted by eligible senior citizens as I discussed above, to the specified bank to claim exemption under Section 194P. The declaration includes the details of income (pension and interest), applicable deductions under Chapter VI-A as well as any other relevant information required for tax computation, by submitting this form, senior citizens authorize the bank to handle their tax compliance.

Tax filing rules for different age groups

Steps to take for senior citizens

Step 1: check the eligibility which determines that are you qualified for exemption under section 194P based on your age, residency, and sources of income.

Step 2: notify your bank by approaching the bank where you receive your pension and your interest income to understand their process for submitting the Form 12BBA.

Step 3: submit required documents by ensuring that all the necessary documents, including proof of age, PAN, and the completed declaration form, are submitted to the bank.

Step 4: verify TDS deduction by periodically reviewing your bank statements to confirm that TDS has been deducted correctly

Conclusion

The exemption from filing ITR as per the section 194P is a significant relief for senior citizens aged 75 and above, reducing their compliance burden and simplifying their financial lives. However, it is essential to meet all eligibility criteria. For those who do not qualify for this exemption, other benefits like higher exemption limits, deductions, and rebates continue to provide relief.

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Author can be contacted at aman.rajput@mail.ca.in