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Section 194P of the Income Tax Act, 1961

Introduction

Section 194P aims to simplify the deduction of the tax compliance process for senior citizens who are 75 years or above of age and have income from a pension.

What is Section 194P?

Section 194P is a provision in the Income Tax Act that allows ‘specified banks will compute the total income of the specified senior citizen which is taxable after effecting the deduction allowable under Chapter VI-A and rebate under Section 87A.

Who Does Section 194P Apply To – Specified Senior Citizen?

It applies to specified senior citizens who meet the following criteria:

They are resident individuals in India.
They are 75 years or above of age in the previous year.
They have income only from pension and interest received from accounts maintained in the same specified bank from where pension income is received.
They do not have any other income from sources such as business, profession, capital gains, rental income, etc.
They have furnished a declaration to the specified bank in such form and manner as is prescribed.

Who has to deduct the tax under Section 194P – Specified Bank?

The specified bank has to deduct the tax under Section 194P of the Income Tax Act, of 1961. A specified bank is a banking company that the Central Government can notify through the Official Gazette.

Exemptions under Section 194P

It provides an exemption from filing ITR for senior citizens who opt for this scheme. However, this does not mean that they do not have to pay any tax on their income. The bank that pays them their pension and interest income will deduct tax at source (TDS) on their behalf at the applicable rates. The TDS rates will depend on the total income of the senior citizen and the slab rates applicable to them.

Declaration: It provides that after receiving the declaration under Form 12BBA from the senior citizen, the bank will calculate the total income for the relevant assessment year and deduct the tax.

Not to file ITR: The senior citizen doesn’t have to file ITR related to the relevant assessment year.

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Certificate of TDS deducted

As per Section 203 of the Income Tax Act, 1961, the specified bank has to furnish a certificate of deduction of TDS under Form No. 16 by June 15th.

How Does Section 194P Work?

To avail of the benefit of Section 194P, a senior citizen has to follow these steps:

The senior citizen has to furnish a declaration to their bank in a prescribed form containing details of their income and deductions.
The bank or financial institution will verify the declaration and check whether the senior citizen meets the eligibility criteria for Section 194P. The bank will deduct tax from the pension and interest income of the senior citizen at the applicable rates and deposit it with the government on behalf of the senior citizen.

The bank will issue a certificate to the senior citizen stating the amount of income and tax deducted under Section 194P.
The senior citizen will not be required to file any income tax return for that year.

Benefit of Section 194P

This section aims to reduce the compliance burden on such senior citizens who may find it difficult to file their income tax returns (ITR) every year.

By opting for this scheme, such senior citizens do not have to file their ITR or pay any advance tax or self-assessment tax. However, they have to declare their income and deductions to their bank or financial institution, which will then calculate their tax liability and deduct it from their income.

Impact on Senior Citizens

Section 194P is expected to benefit senior citizens who rely on interest income for their livelihood. The provision provides relief to senior citizens by reducing their compliance burden and simplifying the TDS process.

Impact on Specified Banks

Section 194P of the Income Tax Act imposes compliance requirements on specified banks. Banks are required to verify the eligibility of senior citizens and maintain records of the declarations submitted by them. The provision is also expected to reduce the workload of banks by simplifying the TDS process for senior citizens.

Penalties for Non-Compliance of Section 194P

Non-compliance with the provisions of Section 194P can result in penalties and fines for banks. If a bank fails to deduct TDS on pension or interest income or fails to maintain records of the declarations submitted by senior citizens, they can be penalized under the Income Tax Act, 1961.

Conclusion

In Conclusion, Section 194P is applicable to specified resident senior citizens who are 75 years or more and earn pension or interest income from specified banks.

CA Arinjay Jain

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