As we age, our financial affairs often become more complex. Senior citizens, in particular, may face various challenges in understanding and managing their tax obligations. In this article, we will simplify the intricacies of Section 194P, a provision aimed at providing tax relief for specified senior citizens. We will explain who needs to deduct tax under this section, who qualifies for its benefits, and the conditions, limits, and rates associated with it. Additionally, we’ll explore the exemption from filing an income tax return and the consequences of non-compliance, offering senior citizens a clear roadmap for managing their taxes with ease.
Page Contents
- Deduction of tax in case of Specified Senior Citizen
- Who is required to deduct tax under section 194P?
- Who is eligible for section 194P relief?
- Conditions for deduction of tax under section 194P
- Threshold limit for tax deduction under section 194P
- Rate of TDS under section 194P
- Exemption from filing return of Income (ITR) if TDS deducted under section 194P
- Penalty and Prosecution for failure to comply with section 194P
- Important points on deduction of tax in case of Specified Senior Citizen
Deduction of tax in case of Specified Senior Citizen
A senior citizen (whose age is 75 years or more) will not be required to file his return of income if his income includes only pension income and interest income from any account maintained with specified bank and such specified bank computed the total income and deduct tax from it.
Who is required to deduct tax under section 194P?
Every specified bank is responsible for deducing tax at source in accordance with section 194P. The bank shall be liable to –
a) Compute the total income of a specified senior citizen for the relevant assessment year after giving effect to the deduction under Chapter VI-A and rebate under Section 87A; and
b) Deduct income tax on the total income on the basis of the rates in force.
Here ‘Specified Bank’ means a banking company which is a scheduled bank and has been appointed as agent of RBI under Section 45 of the RBI Act, 1934.
Who is eligible for section 194P relief?
Tax is required to be deducted only if the recipient is a resident senior citizen whose age is 75 years or more at any time during the previous year.
Conditions for deduction of tax under section 194P
Tax is required to be deducted under this provision only if the following conditions are satisfied:
a) The income of the deductee includes only pension and interest income;
b) The interest is received or receivable from any account maintained by the deductee in such specified bank;
c) The pension income is received in the same bank; and
d) The senior citizen furnishes a declaration in Form No. 12BBA to the bank containing particulars related to pension income.
The effect of the deduction allowable under Chapter VI-A shall be given based on the evidence furnished by the senior citizen during the previous year. The specified bank is also required to maintain the declaration and the evidence furnished by the senior citizen.
Threshold limit for tax deduction under section 194P
No threshold limit has been prescribed for the deduction of tax at source. The tax shall be deducted if any tax is payable on the total income (aggregate of pension and interest income after deduction under Chapter VI-A and rebate under Section 87A) of the deductee.
Rate of TDS under section 194P
The tax shall be deducted at the rates in force. The rate shall be further increased by Surcharge and Health & Education Cess.
The provisions of Section 194P override all other provisions of Chapter XVII-B. Thus, if any tax is also deductible under any other Section (say, Section 194A from interest payable by a bank on the time deposits), the bank shall deduct the tax under this provision only.
For example, if a specified senior citizen earns a pension income of Rs. 2,00,000 and interest income of Rs. 3,00,000 from the fixed deposit during the year, the bank shall not deduct any tax from the interest payable during the year as tax payable on his total income shall be nil after claiming rebate under Section 87A. The bank shall not be required to deduct the tax from the interest payable even if it exceeds the threshold limit of Rs. 50,000 specified in Section 194A.
Tax deducted under this provision is required to be deposited to the credit of the Central Government through Challan ITNS 281 within 7 days from the end of the month in which tax was deducted.
However, the tax deducted during the month of March shall be deposited by 30th April of the next financial year.
Exemption from filing return of Income (ITR) if TDS deducted under section 194P
Where tax has been deducted under section 194P, specified senior citizen shall not be liable to file his return of income for the assessment year relevant to the previous year in which tax has been deducted.
Penalty and Prosecution for failure to comply with section 194P
Failure to comply with the provisions of deduction of tax at source under this provision may result in penalties and prosecution as per the following provisions:
a) If a person fails to deduct tax at source, he shall be liable for payment of penalty under Section 271C;
b) If a person deducts tax but fails to deposit the same to the credit of the Central Government, he shall be liable for the penalty under Section 221 and prosecution under Section 276B.
However, no person shall be punishable under Section 276B if he proves that there was reasonable cause for the failure. Further, a person can also file an application for compounding of offence.
Important points on deduction of tax in case of Specified Senior Citizen
1. A specified bank is responsible to compute the total income and deduct tax from it under section 194P if the account holder is a senior citizen (whose age is 75 years or more) and his income includes only pension income and interest income from any account maintained with such bank.
2. A specified bank is responsible to compute the total income and deduct tax from it under section 194P if the account holder is a senior citizen (whose age is 75 years or more) and his income includes only pension income and interest income from any account maintained with such bank.
3. Tax is required to be deducted under this provision only if the recipient is a resident senior citizen whose age is 75 years or more at any time during the previous year.
4. The deductee furnishes a declaration in Form No. 12BBA in paper form to the bank containing particulars related to pension income.
5. Penalty under section 271C shall be applicable, where any person responsible for deducting tax fails to deduct tax or after deduction, fails to deposit the same to the credit of the Central Government. However, such penalty shall not exceed the amount of tax liable to be deducted or deposited, as the case may be.
Further, the deductor shall be liable for prosecution under section 276B for a term that shall not be less than 3 months but may extend to 7 years and with a fine.
6. The specified bank shall be liable to compute the total income of a specified senior citizen for the relevant assessment year after giving effect to the deduction under Chapter VI-A and rebate under Section 87A.
7. The specified bank shall be liable to compute the total income of a specified senior citizen for the relevant assessment year after giving effect to the deduction under Chapter VI-A and rebate under Section 87A and deduct income tax on the total income so computed on the basis of the rates in force.
