A specified bank is liable to compute the total income and deduct tax therefrom if the account holder is a senior citizen (whose age is 75 years or more) and his income includes only pension income and interest income from any account maintained with such bank. Where tax has been deducted under this provision, the senior citizen shall not be liable to file his return of income.
2. Who is a deductor?
Every specified bank shall be liable for deduction of tax at source in accordance with this provision. Such bank shall be liable to:
(a) Compute the total income of a specified senior citizen (‘deductee’) for the relevant assessment year after giving effect to the deduction under Chapter VI-A and rebate under Section 87A; and
(b) Deduct income-tax on such total income on the basis of rates in force.
The Central Government has notified that specified bank means a banking company which is a scheduled bank and has been appointed as agents of RBI under Section 45 of the RBI Act, 1934.
3. Who is a deductee?
Tax is required to be deducted under this provision only if the recipient is a resident senior citizen, whose age is 75 years or more at any time during the previous year.
4. Conditions for exemption from filing Income tax return and deduction of tax
Tax is required to be deducted under this provision only if the following conditions are satisfied:
(a) The income of the deductee includes only pension and interest income;
(b) The interest should be received or receivable from any account maintained by deductee in such specified bank;
(c) His pension income should be received in the same bank; and
(d) Deductee furnishes a declaration to the bank containing particulars related to pension income in Form 12BAA
5. Nature and type of specified income for section 194P
The senior citizen should earn the following income during the previous year:
(a) Pension income; and
(b) Interest income received or receivable from any account maintained in such bank.
6. Whether pension income covers family pension?
When a pension is received by a dependent family member of the retired individual after his death, it is known as family pension and is taxable as ‘income from other sources’. In other words, the amount received by a retired individual is considered as ‘pension’ and when after this death it is received by the family members, it is termed as ‘family pension’. As the meaning of the term ‘pension’ has not been defined anywhere in the Income-tax Act, but due to its different treatment under the various provision, it may be said that the pension does not include a family pension.
However, as the objective behind such a proposal is to reduce the compliance burden of senior citizens, it is pleaded that family pension should also be eligible for this benefit. Thus, if an eligible senior citizen receiving the family pension after the death of her spouse, she should get relief under this provision from the filing of return of income.
7. Which interest income should be earned?
This provision provides that the interest income should be received or receivable from any account maintained in such bank. As the legislature has chosen ‘from any account’ over ‘in any account’, it restricts its scope to that interest income only which accrues or arises from a bank account. An individual can earn interest income from his bank account by way of interest on the amount deposited in the saving bank account or fixed deposits. Thus, as long as the senior citizen parks his money in saving bank account or fixed deposit, he will be covered under this provision. If he earns any other interest income, he will not be covered under this provision. Example, interest on debentures, interest on income-tax refunds, interest from a loan given to friends or family members, etc.
8. Furnishing of declaration
A senior citizen, who is required to claim the benefit of this provision, shall furnish a declaration in Form No. 12BBA in paper form to the specified bank. No time-limit has been prescribed yet for submission of such form to the bank.
On furnishing of such declaration, the specified bank will compute the total income of such senior citizens for the relevant assessment year after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under Section 87A. The specified bank will deduct income-tax on total income so computed on the basis of the rates in force.
The effect to the deduction allowable under Chapter VI-A shall be given based on the evidence furnished by the senior citizen during the previous year. The specified bank is also required to maintain the declaration and the evidence furnished by the senior citizen and same shall be made available to PCCIT or CCIT as and when required.
The procedure to submit Form No. 12BBA by the specified bank to the PCCIT or the CCIT shall be specified by the Pr. DGIT (Systems) or DGIT (Systems) as and when required.
9. Threshold limit
No threshold limit has been prescribed for deduction of tax at source. The tax shall be deducted if any tax is payable on the total income (aggregate of pension and interest income after deduction under Chapter VI-A and rebate under Section 87A) of the deductee.
10. Time of deduction
The section has not prescribed the time at which tax is required to be deducted under this provision.
11. Rate of TDS
Tax shall be deducted at the rates in force. The rate shall be further increased by Surcharge and Health & Education Cess.
The provisions of Section 194P override all other provisions of Chapter XVII-B. Thus, if any tax is also deductible under any other Section (say, Section 194A from interest payable by a bank on the time deposits), the bank shall deduct the tax under this provision only. Where no tax is due on the total income of the specified senior citizen computed by the bank, no tax shall be deductible even if the amount payable by the bank exceeds the threshold limit specified in any other provision.
Example, if a specified senior citizen earns pension income of Rs. 2,00,000 and interest income of Rs. 3,00,000 from the fixed deposit during the year, the bank shall not deduct any tax from the interest payable during the year as tax payable on his total income shall be nil after claiming rebate under Section 87A. The bank shall not be required to deduct the tax from the interest payable even if it exceeds the threshold limit of Rs. 50,000 specified in Section 194A.
12. Applicability of Section 206AA
Section 206AA starts with a non-obstante clause which overrides all provisions of the Act but subject to the condition the tax should be deductible under Chapter XVII-B. Section 194P also starts with a non-obstante clause which overrides all provisions of Chapter XVII-B. It means that if a specified senior citizen is covered under Section 194P, the bank shall deduct tax under this provision only. This aspect has also been discussed in the previous para.
The tax under Section 194P shall be deducted only if any tax is payable on the total income of the specified senior citizen as per the rates in force. If no tax is due, the bank will not deduct any tax. As no tax is deductible under Chapter XVII-B (which also comprises Section 194P), the provision of Section 206AA will not come into force. In such a situation, if the specified senior citizen does not have a PAN, the bank will not be required to deduct tax at a higher rate applying Section 206AA. Though furnishing of PAN is mandatory for opening of bank account or to make a deposit with the bank above certain limit. But, if PAN is not available with a person, he can furnish a declaration in Form No. 60.
In the above example, if the specified senior citizen does not have a PAN and he furnishes Form 60 to the bank, the bank shall not apply Section 206AA. However, if any tax is payable by the senior citizen, the bank will apply Section 206AA and deduct tax accordingly.
13. Exemption from filing of return of income
Where tax has been deducted under this provision, deductee shall not be liable to file his return of income for the assessment year relevant to the previous year in which tax has been deducted.
14. Compliance with Taxmann’s e-TDS software
The person responsible for deduction of tax at source under this provision is required to file a statement of tax deducted at source in Form 24Q on a quarterly basis. Some changes are updated in Form 24Q and annexure 3 is added for specifically added in Form 24Q for the purpose of giving details of pension and interest income paid or credited during the financial year as per notification 99/2021.
Further, the specified bank shall issue a TDS certificate to the senior citizen in Form No. 16 up to 15th June of the financial year immediately following the financial year in which amount was paid and tax has been deducted. Form 16 is also updated by notification no. 99/2021.
All these changes are updated in Taxmann’s ETDS software for hassle-free compliance.