The very first direct tax proposal spelt out by Hon’ble Finance Minister in her budget speech of 2020-21 was, “Relief to Senior Citizens”. The bill proposes to provide senior citizens exemption from filing return of income subject to fulfilment of certain conditions. In this regard, CA Anand Eriwal analyses the proposed Sec.194P for the purpose of reduction of compliance burden of senior citizens.

The author examines the conditions specified in the section and highlights that certain matters would be specified by the Government at a later stage by way of notification including the details that needs to be furnished in the declaration by the Senior Citizen to the specified bank. The author also dwells on some of the issues that may need consideration. The author ponders whether the interest income from specified bank would cover interest from savings bank or even interest from fixed deposit maintained by the Senior Citizen in that same bank would also be covered. While signing off, the author remarks “We are not sure, how the new provisions of Section 194P of the Act would be practically useful to senior citizens… However, let us hope, that Section 194P would indeed be a gift to some of our Senior citizens.”

“Gift “to Senior Citizens by Finance Bill 2021

Introduction

The very first direct tax proposal spelt out by Hon’ble Finance Minister in her budget speech of 2020-21 was, “Relief to Senior Citizens”. 

The Hon’ble Finance Minister started her direct tax proposals by offering “pranaam” to senior citizens, who have strived to build our country, India!

The Finance Bill 2021 proposes to provide relief to senior citizens by providing them exemption in filing return of income, in case of fulfillment of certain conditions.

Memorandum explaining the provisions of Finance Bill 2021

Clause 47 of the Memorandum provides that a new section would be inserted in the Income-tax Act, 1961 (‘Act’) for the purpose of reduction of compliance burden of senior citizens. 

The new section would be effective from 1st April, 2021.

New Section 194P for deduction of tax by specified bank in case of certain Senior Citizens

Relief has been granted to certain category of senior citizens, by introducing a new Section 194P. The new section 194P of the Act exempts senior citizens from filing return of income, if the conditions specified u/s 194P of the Act are fulfilled.

Conditions specified u/s 194P

The following are the conditions that are specified u/s 194P of the Act.  These are specifically mentioned in explanation (b) of Section 194P by way of definition of specified senior citizen.

1. The age of the Senior Citizen must be 75 years or more than 75 years at any time during the previous year;

2. The Senior citizen must be resident in India;

3. He must have pension income and no other income except interest from bank account

4. The interest income must be from the same bank account, from where he is receiving his pension income.

5. He must furnish a declaration to the specified bank containing certain specified details.

Notifications/ Rules at later stage

Certain matters would be specified by the Government at a later stage by way of notification. The Government would notify the following subsequently: -

a) Details to be furnished in the declaration by the Senior Citizen to the specified bank
b) The provisions of Section 194P would be applicable only in respect of pension received from specified banks. The specified banks would be notified by the Government

c) Form of declaration by senior citizen would be provided by Rules, at later stage.

Withholding of taxes by specified Bank

Sub section (1) of Section 194P of the Act provides that the specified bank shall deduct withholding tax at rates in force after giving effect to deductions under Chapter VI-A and rebate u/s 87A of the Act.

Exemption for filing of return of income

Sub section (2) of Section 194P of the Act provides that the provisions of Section 139 of the Act would not be applicable to the Senior Citizen for the assessment year relevant to the previous year, in which withholding tax is deducted by the specified bank u/s 194P(1) of the Act.

Sub-section (1) of the section 139 of the Act provides that every person being an individual, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income.

The senior citizens, who would be subject to withholding taxes u/s 194P(1), would not be required to file income tax return u/s 139 of the Act accordingly, by virtue of Section 194P(2) of the Act

Applicability

The provisions of Section 194P of the Act would be applicable from assessment year 2022-23 and subsequent assessment years.

Issues that may need consideration

Following are some of the issues, that may need consideration and accordingly, one may have to apply their judgement accordingly:

1. Interest income from Bank: Whether the interest income from specified bank would cover interest from savings bank or even interest from fixed deposit maintained by the Senior Citizen in that same bank would also be covered ? This is not clear from the Section 194P of the Act, but on a plain reading it appears that even interest from fixed deposit received from the same bank should be squarely covered.   However, the bank may provide deduction u/s 80TTB of the Act to the senior citizen while computing the withholding taxes.

Section 80TTB of the Act provides deduction of income in the nature of interest income from savings bank account including interest from fixed deposit upto a maximum amount of Rs 50,000.  This deduction is available to  a senior citizen above the age of 60 years and above at any time during the previous year.

2. Rate of tax deduction: It has been mentioned that specified bank would deduct withholding taxes at rates in force, without providing much guidance, as to how the rate of tax would be practically computed by the specified bank.

3. Time of deduction of withholding taxes: The point of time, when the tax would be deducted by the specified bank, is not mentioned in section 194P of the Act. It is expected that a detailed guideline in the form of clarification would be issued to specified bank for the purpose of practical application of the provision of section 194P of the Act.

 Practical relevance

We are not sure, how the new provisions of Section 194P of the Act would be practically useful to senior citizens.  There may be hardly few senior citizens, who earn only pension income and interest income (that too from the same bank, from where pension income is earned)!  Also, it is highly unlikely, in the today’s world that a senior citizen would have only one bank account. However, let us hope, that Section 194P would indeed be a gift to some of our Senior citizens