Tag: Senior Citizen’s Savings Scheme

Income Tax Exemption for Senior Citizens over 75: Conditions and Benefits

Section 194P of the Income-tax Act,1961 was introduced in Budget 2021 to provide conditional relief to senior citizens above the age of 75 years from filing the income tax return. Section 139 of the Income Tax Act governs the filing of income tax returns by every individual with income above the basic exemption limit. 

However, Union Budget 2021, to provide relief in terms of compliance burden for filing returns, exempted senior citizens above 75 years of age from filing the income tax return, subject to the following conditions:

Conditions for exemption under section 194P

  • Senior citizens should be of age 75 years or above. 
  • Senior citizens should be ‘Resident’ in the previous year. 
  • He must have pension income and interest income from a bank account (savings or deposits) only. Interest income must be accrued/earned from the same bank in which he is receiving his pension.
  • The senior citizen will submit a declaration containing some details (mentioned below) to the bank.
  • The bank must be specified, and a ‘specified bank’ is a banking company as notified by the Central Government. Such banks will be responsible for the TDS deduction of senior citizens after considering the deductions under Chapter VI-A and rebate under 87A. 

Once the specified bank, as mentioned above, deducts tax for senior citizens above 75 years of age, there will be no requirement to furnish income tax returns by senior citizens.

Filing a declaration by a senior citizen

The specified bank, as mentioned above, shall deduct TDS based on a declaration submitted by the senior citizen to the bank. 
The declaration should contain the below-mentioned details :

How will the taxable income be calculated under the new section?

A senior citizen must submit a declaration using Form No. 12BBA. Once the older citizen has filed the declaration, the bank will compute the gross total income (pension plus interest income). To calculate net taxable income, the bank will also consider the deductions, tax exemptions, and rebates available to elderly citizens under Section 87A. After deductions and rebates, the bank would now deduct TDS for older persons.

The bank will request proof of deductions and tax exemptions that the senior person is entitled to when filing the declaration. If they choose the previous income tax regime, this will be required. If the older citizen chooses the new income tax regime, no investment proof will be required.

Benefits to senior citizens under 194P

Upon collection of deduction details, the specified bank calculates the net taxable income, deducts the calculated tax in the form of TDS under section 194P, and reports it to the department. The TDS amount will be reflected in Form 26AS just like any other TDS amount. 

Then the provisions of section 139 (return filing) will not apply to senior citizens aged 75 years and above. This means that if the specified bank deducts TDS under this section, then the senior citizen need not file their ITR. This will be a relief for such taxpayers.

Format of Form 12BBA

https://www.winmansoftware.com/files/Forms/Blanks/Form_12BBA.dot

Who is exempted from ITR filing?

Senior citizens aged 75 years or more having pension income and interest income from the same bank where such pension income is received, not having any other income other than the mentioned 2 income are exempted from filing income tax returns upon submission of declaration in Form 12BBA to the bank.

Which tax regime will be applied while deducting TDS u/s 194P?

Once the taxpayer has filed the declaration, the bank calculates net taxable income after considering the deductions, tax exemptions, and rebates available to elderly citizens under Section 87A, then applies the beneficial tax regime to the taxpayer to arrive at the TDS to be made u/s 194P.

Which tax regime will be applied while deducting TDS u/s 194P?

Once the taxpayer has filed the declaration, the bank calculates net taxable income after considering the deductions, tax exemptions, and rebates available to elderly citizens under Section 87A, then applies the beneficial tax regime to the taxpayer to arrive at the TDS to be made u/s 194P.

What are the deductions limit u/s 80C and 80D for Senior citizens?

SectionsEligible investments for tax deductionsMaximum Deduction
80CInvestment made in Equity Linked Saving Schemes, PPF/SPF/RPF, payments made towards Life Insurance Premiums, principal sum of a home loan, SSY, NSC, SCSS, etc.Rs 1,50,000
80DFor the policy taken for Self & Family + Parents (above 60 years)Rs 1,00,000

What is Form 15H for senior citizens?

Form 15H are self-declaration form that an individual submits to the payer requesting not to deduct TDS on the income as their income is below the basic exemption limit. 

For this, providing PAN is compulsory. Some banks allow you to submit these forms online through the bank’s website.

What is the age limit for 194P?

Relaxation from filing the ITR is available to resident senior citizens aged 75 years or older.

Special Income Tax Benefits for Senior Citizens Aged 60 and Above

Here are some exemptions, deductions and benefits that may ease financial responsibilities for taxpayers over 60 years. 

1. The elementary exemption benefit

Every individual in India, who falls under the income bracket to pay tax, is allowed some elementary waivers. 

For senior citizens, the government has increased this basic exemption limit up to ₹3 lakhs under both tax regimes, effective April 1, 2023.  

Super citizens get a higher advantage, considering their income and age. For them, this waiver is of up to ₹5 lakhs under the old tax regime in one financial year. Under the new regime, however, the basic exemption limit is up to ₹3 lakhs. 

Other than the senior or super citizens, this exemption for ordinary citizens is up to ₹2,50,000/- only under the old tax regime, which leads them to pay more taxes. 

2. Benefits under medical insurance

Under section 80D, senior citizens are offered a benefit on account of payment of the health insurance premium up to ₹50,000. Super senior citizens who are not medically insured can also enjoy this benefit.

For super citizens, under section 80D, the deduction for the payment of medical premium as well as the actual expenses incurred on their treatment are allowed.

3. Privilege on interest income

Senior citizens who are residents of India will have to pay no tax on their interest earned up to ₹50,000 in a financial year. 

Applicable under section 80TTB of Income Tax, this will consider interest earned in the savings bank account, deposits in a bank, and/or deposits in the post-office. When filing their Income Tax Return, senior citizens must fill the form 15H.  

Also, Section 194A provides senior citizens with the benefit of a higher TDS deduction on interest payments of up to ₹ 50,000 by the bank, post office or cooperative bank. This limit is ₹ 40,000 for non-senior citizens.

4. Exemption from filing ITR

Budget 2021 introduced a Section 194P, under which senior citizens aged 75 and above are exempted from filing the ITR if they fulfil the following criteria:

5. No advance tax

While individuals below the age of 60 have to pay an advance tax if their tax liability is ₹10,000 or more in a financial year, senior citizens are free from this burden unless they make income from business or profession.  

6. Allowance for the treatment of specified diseases

The Indian government allows individual taxpayers and dependent relatives below the age of 60 not to pay tax if medical treatment costs close to ₹40,000.  

For dependent senior and super senior citizens, this deduction limit is up to ₹1 lakh if they undertake any treatment for a specified disease/critical illness in a financial year, as per Section 80DDB of the Income Tax Act. 

7. Income Tax Return benefits

Super Senior Citizens (individuals above 80 years) can file for their Income Tax Returns through either Sahaj (ITR 1) or Sugam (ITR 4). They can choose to do it either manually or electronically. 

8. No tax under the Reverse Mortgage Scheme

Senior citizens may reverse mortgage on any of their accommodations to make monthly earnings. The ownership of the property remains with the senior citizen, and they are given monthly payments for it. The amount paid in instalments to the owner is exempted from Income Tax. 

9. Standard deductions from pension income

Senior citizens are allowed a standard deduction of ₹50,000 for their pension income, including family pensioners who can avail of deduction benefits up to Rs 15,000. 

7 Big key changes to Senior Citizen’s Savings Scheme

Senior Citizen’s Savings Scheme has now allows three months to open an account, up from the current one month. Further, account holders can now extend the account for any number of blocks, with each block lasting three years.The Senior Citizen’s Savings Scheme (SCSS), designed for individuals aged 60 years or employees above 55 years of age and below 60 years of age, offers 8.2 per cent interest per annum. The Department of Economic Affairs, Ministry of Finance notified the latest round of changes on November 7.

Here are the seven changes in small savings schemes:

  1. As mentioned earlier, the government has provided three months to invest in SCCS for individuals aged above 55 but below 60. Currently, investment has to be made within one month of receipt of retirement benefits.
  2. The scope of retirement benefits has been clearly defined. As per the notification, retirement benefit means any payment received by the individual due to retirement or superannuation. This includes provident fund dues, retirement or superannuation or death gratuity, commuted value of pension, leave encashment, savings element of group savings linked insurance scheme payable by the employer on retirement, retirement-cum-withdrawal benefit under Employees’ Pension Scheme (EPS) and ex gratia payments under a voluntary or special voluntary retirement scheme.
  3. The new rules also permit the spouse of a government employee to invest the financial assistance amount in the scheme.
  4. Under the updated rules, a 1 per cent deduction of the deposit is applicable if the account is closed before completing one year of investment. Earlier, if account closed before one year, no interest will be payable and if any interest paid in account shall be recovered from principle.
  5. Account holders can now extend the account for any number of blocks, with each block lasting three years. Previously, the extension was allowed only once.
  6. In the case of extending the SCSS account on maturity, the deposit will earn the interest rate applicable to the scheme on the date of maturity or on the date of the extended maturity.
  7. As per the notification, “The deposit made at the time of opening of account shall be paid on or after the expiry of five years or after the expiry of each block period of three years where the account was extended under paragraph 8 from the date of opening of account. Provided that after the closure of the existing account or accounts, new accounts or accounts may be opened again as required by the depositor subject to the maximum deposit limit.”

The government currently offers nine small savings schemes, including the Public Provident Fund (PPF), Sukanya Samriddhi Yojana, Senior Citizen’s Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), National Savings Certificate (NSC), Kisan Vikas Patra (KVP), Post Office Time Deposit (POTD), Atal Pension Yojana (APY), and Pradhan Mantri Vaya Vandana Yojana (PMVVY). Each scheme comes with its own set of features, tenures, and interest rates.  

Changes in PPF and Time Deposit accounts 

The latest notfiation also relaxed norms for the premature closure of a Public Provident Fund Account. Previously, premature closure of a PPF Account incurred a penalty, with interest allowed at a rate 1 per cent lower than the rate credited to the account since its opening or extension. 

With the modification, interest on premature closure will now be allowed at a rate of 1 per cent less than the interest periodically credited to the account from the start of the current five-year block period.

According to the notification, if a withdrawal is made prematurely from the five-year Time Deposit Account after four years from the account’s opening date, the applicable interest rate would be that of the Post Office Savings Account. 

As of now, closing a five-year Time Deposit account four years from the deposit date would entail the application of the interest rate applicable to a three-year Time Deposit account for interest calculation.