The budget presented on 1st February 2021 has proposed exemption to senior citizen from filing of income tax return (ITR) subject to satisfaction of certain conditions. Let us understand what is the proposal and whether it will really work as intended.

Relief proposed for Senior citizen

Presently, based on the income criteria, every individual has to file his ITR if aggregate of his income from all the sources exceeds the basic exemption limit. For this purpose, the income to be considered is sum of all incomes before availing various deductions. Major of such deductions are those available under like Section 80 C for various investments and expenses, under Section 80 D for health insurance and under Section 80 TTA and 80 TTB for non-senior citizen and senior citizen respectively in respect of bank interest.

For the purpose of basic exemption individuals have been divided into three categories. For those who are below 60 years, the basic exemption limit is 2.50 lakhs. For those who have completed 60 years but have yet to complete 80 years it is Rs. 3 lakhs and for those who have already completed 80 years, it is 5 lakhs.

The budget has created another category of senior citizen i.e. those above 75 years of age for the purpose of granting exemption from filing of the ITR. The exemption will be available if their income comprises only of interest and pension. Moreover, the interest income of such senior citizen should only be derived from the same bank which disburses pension. The exemption from filing of ITR is not automatic. The senior citizen will have to furnish a declaration to the concerned bank along with details of various deductions available to the him, in respect of investments made and expenses incurred. The bank will then deduct the appropriate amount of tax after taking into account the deductions available and the rebate of tax available under Section 87A upto Rs. 12,500/- in case the taxable income does not exceed 5 lakh rupees

Will the scheme be successful?

So from the conditions prescribed it appears that the government has outsourced the job of ensuring that appropriate tax from senior citizen is collected to the banks.   It will unnecessarily increase the compliance burden of the banks.

All the tax payers who have income from pension and interest have to file only the simplest form ITR 1, which I think is almost like submitting the declaration and details to the banks. So instead of creating this new category, the government could have relaxed the condition of online fling of ITR by such category of tax payers and allowed them to file paper returns. In such a situation the burden of compliance would have remained the same for senior citizen.

As far as the number of tax payers which will get covered under this scheme is concerned, I do not think any significant numbers will be covered under the proposed scheme due to the conditions of composition of the income. As the bank fixed deposits do not offer attractive interest, the senior citizens are forced to invest part of their money in various schemes where the return offered are relatively higher like Senior Citizen Saving Scheme, Varishth Vay Vandana Yonaja, RBI floating rate saving bonds etc. In order to diversify their risk, the senior citizens who put all their money in bank fixed deposits, do not put the it only with one bank and that too with the bank disbursing their pension. The senior citizens also invest in equity shares, mutual funds and with companies as fixed deposits.

I am unable to understand why the government needed to create one more category of senior citizens in addition to two already existing.  I am also not able to understand the reason for fixing the 75 years of age for being eligible to claim this so called benefit. The government could have simply made the scheme applicable to all the senior citizen satisfying the prescribed conditions  instead of creating one more category of individual tax payers.

Instead of this provision, the government could have simply exempted all the senior citizens from the liability to file their ITR if their only source of income is interest and pension and they do not have any further tax liability after taking into account the amount of tax, if any, deducted on their pension and interest.

I feel the government is unnecessarily making the matter complicated by introducing such provisions which will not benefit any significant number of tax payers and instead increase compliance burden for banks.

The writer is a tax and investment expert and can be reached at [email protected]

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15 Comments

  1. NAYANA MANDKE says:

    I AGREE. AGAIN WHEN TDS IS DEDUCTED FROM INTEREST , IT GETS DEPOSITED IN 26 AS . TO GET THE REFUND OF THIS AMOUNT , EVERY BODY SHOULD FILE ITR , INCLUDING SENIOR CITIZEN

  2. B M MEHTA says:

    Exemption of ITR for senior citizens above 75 is a joke. Nobody will benifited.If government wants to help senior citizens than exempt from tax above 75.

  3. rugram says:

    I totally agree with what the learned author has written. This new scheme is likely to be a non-starter in the sense that it would cover a miniscule population of senior citizens. Creation of a new category of senior citizens of 75+ age, presumably to coincide with the 75th year of Indian Independence, is meaningless.
    Bank branches are ill-equipped with expertise to handle this work, as most bank staff themselves take the help of a tax consultant to file their personal I-T Returns.

    If the Govt. really wants to help senior citizens in their twilight years of life, it is far better to exempt them from the crushing burden of taxing dividends and capital gains, as also equating them with all others with the same basic exemption limit. Certain safe-guards to prevent transfers from other people to senior citizens to avoid tax, would certainly be required, which is not difficult to enforce.
    The laws on capital gains are very complicated, as it is, with so many conditions imposed. The Govt. should simplify these provisions to make people – particularly seniors – understand them.
    It is sad that seniors, who form just 10% of the population, are made to suffer with falling interest rates and increasing taxation.

  4. GANDHI MOHAN BHARATI says:

    I feel that this a scheme just to announce as if a beautiful gift is being given to 75 years and above. Moreover, the days when Banks disbursed the pension are being withdrawn by most States and certain Departments of even G of I. If FM is unaware of the situation it speaks poor of the Officials drafting the Budget. I feel that future statistics may show the poor conception. Most of the 75 years and above who are non-pensioners are also feeling that they are exempt because they do not know the nitty-gritty of the wordings. Overall I feel it a cruel joke

  5. Brahmpal says:

    Only very very small population of tax paying SR citizen will be covered Under this scheme. Bank branches employees are not fully aware of Income Tax act provisions to
    Give all deduction Benefiting as DDOs can do .

  6. S Vaitheeswaran says:

    I endorse your views on ITR filing by senior citizens of age 75 and above subject to conditions which is burdensome to everyone involved in the process. Already FM has complicated ITR filing with the introduction of new and old regime besides taxing interest earned on PF Contribution in excess of ₹.2.5 lacs in an FY and ULIPs subject to certain conditions and taxing long term capital gain with cut off value as of January 31, 2018. Again taxing the dividend at the hands of receipients. Hope PM & FM would reconsider the above points thus rationalising and simplify filing of ITR and tax slabs as well. Thanks

  7. S KRISHNAN says:

    F M only Appears To Have Wasted Her Super
    Brain , Without Seeing The Pros & Cons ,
    And The Problems / Difficulties Already Being
    Being Faced By The Senior Citizens ( 60 to
    75 years and 75 years & 80 years & Above .As I Have Repeaedly Requesting All the
    Concerned Officials , Finasnce Ministry , Income
    Tax Departments , The Easiest & Only Best Way To Get The Correct Income Of A Person
    Is FORCEFULLY ORDER That Each & Every
    Payment , Whether It Is By Way Of Interest .
    Or Any Other Income, To Fill & Post Every
    Payment In The I T R FORM 26 – AS STATEMENT , Which Will Ensure To Show The
    Exact And Correct Income Of A Person ,
    Helpful For I T Department And Also Individual
    Person ; I Don ‘ T Know Why This Suggestion /
    Advice Of Mine Ks Not Being Considered And
    Looked Into .Eveything Should Be As Simple
    As Possiblwe In The Best Way .

    The Prrsent Proposal Of F M For Senior
    Citizens Of 75 Years & Above Is Nothing But
    Waste , And O nly Befooling The Honest
    Citizens / Tax Payers . Already I t Departmwent
    Has All The Required Information About
    PAN Card Number , Aadhaar Card Number ,
    Individuals Income Etc. Hence What Is The
    Problem , It Is Not Clear ; It Would Have Been
    Better If Everything Is Left As It Was / Is.

  8. Sekaran says:

    Dear Sir
    Your article has only made a very feeble advance.
    You should have suggested that all senior citizens with their income from Interest only should be exempt from ITR..Why only pensioners?? Why should Govt be partial to the Baboos only and not to the other oldies without insurance and pension?
    The number of such senior citizens is also not very high. Why ca’nt Govt exempt them from paying any Income tax altogether?
    Secondly the 7.5% TDS is an eye-wash. Everybody has to pay IT on his income. How does the 7.5% help in any way? Instead of paying before you have to pay later. That’s all. It is foolish as periodic TDS is far superior to an one time larger cut!
    Govt has only applied a make up to the lady called annual ITR rather than giving any worthwhile savings to the plus 75 oldies. Govt is giving sops left , right and centre to all and have also increased the fuel prices steeply. Therefore a total exemption of IT to senior citizens is a very urgent need of the senior citizens.

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