Union Budget 2021 added section 194P of the Income Tax Act of 1961. It commences on July 1, 2021. The purpose of Section 194P was to benefit the elderly.
This document covers
- What is Section 194P?
- Persons required to deduct TDS u/s 194P
- Rate of TDS
- Threshold of TDS
- Conditions for deduction of TDS u/s 194P
1. What is Section 194P?
A Resident senior citizen whose age is 75 years, or more are not required to file the income tax returns if their income includes only pension and bank interest from any accounts maintained with specified banks and such banks should deduct TDS on the total income of senior citizens.
2. Persons required to deduct TDS u/s 194P
Every specified bank is responsible for deduction of TDS u/s 194P. The bank should do the following.
- Compute the total income of the senior citizen for the relevant assessment year after giving effect to the deduction u/s Chapter VIA and rebate u/s 87A.
- Deduct the amount of income tax as per rates in force.
NOTE: Senior Citizen needs to furnish a declaration to the specified bank. If the senior citizen does not declare the old or new regime, the bank will deduct the TDS as per default Tax regime i.e., New Tax Regime
3. Rate of TDS
The rate of TDS depends on the slab of senior Citizens. The banks will deduct the TDS by computing the total income and deduct the TDS as per the income. The Income tax will be increased by surcharge and education cess also.
Refer @ Income Tax Benefits for Senior Citizens to know more.
Also refer comprehensive set of TDS sections and rates to know more.
4. Threshold of TDS
There is no threshold limit prescribed for deduction of TDS u/s 194P.
5. Conditions for deduction of TDS u/s 194P
The following conditions are required to be satisfied to deduct TDS u/s 194P.
- The income of the senior citizens should contain only Pension and Interest income.
- The interest should be received or receivable from any account maintained by senior citizen in specified bank.
- The pension income should also receive in the same bank
- The senior citizen should furnish a declaration in form 12BBA to the bank containing particulars related to pension income, deductions and Tax Regime.
: Mr Dasaradh aged 77 years is a Senior Citizen and he is a resident of India. He has a pension of Rs 3 lakhs and interest of 7 lakhs from the bank. He has submitted his declaration in Form 12BBA with pension income. He doesn’t have any deductions u/s Chp VIA. Now the bank is required to deduct the following amount as TDS for AY 2023-24 .
- Dasaradh total income is 10 lakhs (Pension +Interest).
- Dasaradh has opted for New Tax Regime as he doesn’t have any deductions.
- Calculation of Tax on Rs 10 lakhs income under New Tax Regime is Rs 78000 including tax and education cess.
- Now the bank is required to deduct Rs 78000 and pay to the Government in the form of TDS u/s 194P.
- In this case, as bank has cleared the tax liability of Dasaradh, he is not required to file income tax returns for AY 2023-24
IMPORTANT NOTE: In above case, if Mr Dasaradh is having any sale of shares, property or business, he is required to file the income tax return for AY 2023-24 mandatorily