Section 194P of the Income Tax Act – Simplifying Tax for Senior Citizens Aged 75

The Government of India has taken a significant step toward easing tax compliance for the elderly. Section 194P of the Income Tax Act was introduced in Budget 2021 & inserted into the Income Tax Act 1961 with effect from 1st April 2021. It aims to exempt senior citizens aged 75 with only pension and interest income from the burden of filing income tax returns.

This unique relief measure has been well-received, especially for retirees who often face difficulties navigating digital platforms. But what does this section offer? Let’s break it down.

What is Section 194P of the Income Tax Act?

Section 194P is a special provision for the deduction of tax in the case of a specified senior citizen. It directs specified banks to compute the total income & deduct tax accordingly, ensuring such individuals are not required to file an income tax return.

In simple terms, individuals aged 75 and above—who earn only pension and interest income from the same bank—can now avoid filing income tax returns, provided they fulfil certain conditions & submit a declaration.

Who is a “Specified Senior Citizen”?

To qualify for this benefit under section 194P of the Income Tax Act, a person must satisfy the following:

• Must be an Indian resident.
• Should be aged 75 years or more during the financial year.
• Income should be only from pension and interest, both from the same bank.
• The bank should be a “specified bank” as notified by the government.
• The individual must file a declaration under Section 194P with the bank.

Once the declaration is filed, the onus of deduction of tax & tax compliance lies with the bank, not the taxpayer.

Declaration Under Section 194P

To claim exemption, the senior citizen must furnish a declaration under Section 194P of the Income Tax Act 1961 to their bank. This declaration should include:

• Details of income
• Deductions under Chapter VI-A (like Section 80C, 80D, etc.)
• Rebate under Section 87A (if applicable)

Once the bank receives this declaration, it will calculate the total income, apply deductions & rebates, and deduct tax at source accordingly. The individual aged 75 years or above is not required to file an income tax return after this.

Applicability of Section 194P of the Income Tax Act

A common query is about the applicability of Section 194P of the Income Tax Act. It is only applicable to specified senior citizens who meet the eligibility criteria. Those with any income other than pension and interest—such as rental, business, or capital gains—will not qualify for this exemption.

Additionally, if pension & interest are received from different banks, the exemption is not available under this section.

Benefits of Section 194P for Senior Citizens

1. Ease of compliance: Eliminates the need for ITR filing.
2. Peace of mind: Tax is deducted and paid by the bank directly.
3. No digital complications: Ideal for those not comfortable with online portals.
4. Timely deductions: Banks will take care of TDS based on the declaration submitted.

This initiative was introduced to furnish relief for those senior citizens whose income is confined to simple, fixed sources & who may not be tech-savvy enough to e-file returns.

Limitations of Section 194P

Despite its benefits, Section 194P of the Income Tax Act, 1961 has limitations:

• Available only through notified banks.
• Covers only pension and interest income.
• Individuals must submit a valid and complete declaration.
• Does not cover senior citizens earning from multiple banks or investment types."

Common Questions Around Section 194P

1. Is filing ITR mandatory after declaration?
   No, once the declaration is submitted and TDS is deducted, there's no need to file ITR.
2. Can a senior citizen with FD interest from another bank avail of this?
   No. The exemption is applicable only if both the pension and interest are from the same bank.
3. What if I have dividend income?
   Then you won’t qualify under section 194P, as the income should be strictly pension & interest only. "

Conclusion

Section 194P of the Income Tax Act offers genuine tax relief for senior citizens aged 75 years or more who have a limited and stable source of income. By transferring the tax compliance responsibility to banks, the government ensures minimal hassle and maximum convenience. Senior citizens who receive only a pension and interest income can now relax & avoid annual ITR formalities.

So, if you or a loved one qualifies, make sure the declaration is filed with your bank & enjoy the freedom from return filing.

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