Section 194P of the Income Tax Act, 1961 was introduced in the Union Budget 2021 and is applicable from 1st July 2021. This section mandates the deduction of tax at source (TDS) on the payment of certain specified sums by a specified person to a specified recipient. In this blog, we will take a closer look at the provisions of Section 194P and their implications.
Applicability of Section 194P
Section 194P is applicable to specified senior citizens who are residents in India and have attained the age of 75 years or more during the previous year. Such senior citizens should have income only from pension and interest from a bank or post office, and no other income.
The provision applies to senior citizens who maintain accounts with the specified banks and post offices. The specified banks include scheduled banks, cooperative banks, and post offices that provide banking facilities.
The specified sums on which TDS is required to be deducted under this section include the interest income earned by the specified senior citizens from the bank or post office where they have maintained the accounts. The interest income should not exceed Rs.50,000 in a financial year.
Rate of TDS under Section 194P
The rate of TDS under Section 194P is nil. Yes, you read that right! No TDS will be deducted on the specified sums if the senior citizen meets the conditions mentioned above.
However, to claim the benefit of no TDS, the specified senior citizen should furnish a declaration to the bank or post office where they maintain the account. The declaration should be in Form No. 12BBA and should contain the details of the senior citizen’s income and tax deducted thereon.
Implications of Section 194P
Section 194P has been introduced to provide relief to senior citizens who rely solely on their pension and interest income for their livelihood. The nil TDS provision aims to reduce the compliance burden on such senior citizens and ensure that they receive the full amount of interest income earned from the bank or post office.
The introduction of Section 194P is a step towards the government’s commitment to providing senior citizens with a dignified life. This provision will go a long way in reducing the financial burden on senior citizens and providing them with some relief in their golden years.
Background
Senior citizens who are 75 years or older and have no other source of income other than pension and interest income were facing difficulties in complying with the TDS provisions. As per the previous provisions, such senior citizens had to file their income tax returns and claim a refund of the TDS deducted on their interest income. This resulted in a lot of inconvenience and hassle for the senior citizens. To provide relief to such senior citizens, Section 194P was introduced in the Finance Act, 2021.
Exemption from TDS
Under Section 194P, no TDS is required to be deducted on the specified sums paid to the senior citizens who meet the following conditions:
- The senior citizen is a resident of India.
- The senior citizen has attained the age of 75 years or more during the previous year.
- The senior citizen has income only from pension and interest from a bank or post office.
- The interest income should not exceed Rs. 50,000 in a financial year.
Declaration in Form No. 12BBA
To claim the benefit of no TDS, the specified senior citizen needs to furnish a declaration in Form No. 12BBA to the bank or post office where the account is maintained. The declaration should contain the following details:
- Name, address, and Permanent Account Number (PAN) of the senior citizen.
- Details of the bank account or post office account.
- Details of the pension received by the senior citizen.
- Details of the interest income received by the senior citizen.
- Confirmation that the senior citizen satisfies the conditions specified under Section 194P.
Penalty for non-compliance
If the senior citizen fails to furnish the declaration in Form No. 12BBA to the bank or post office, the bank or post office will deduct TDS on the interest income at the normal rates. Non-compliance with the provisions of Section 194P may attract a penalty under Section 271CA of the Income Tax Act.
Conclusion
Section 194P of the Income Tax Act, 1961 is a beneficial provision for senior citizens who are dependent on pension and interest income for their livelihood. The provision exempts them from the burden of TDS and reduces their compliance burden. Senior citizens who meet the conditions specified under the section should furnish a declaration in Form No. 12BBA to the bank or post office to avail of the benefit of no TDS. The introduction of this provision is a welcome step towards providing a dignified life to senior citizens.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q.1 What is Section 194P of the Income Tax Act, 1961?
A. Section 194P is a provision in the Income Tax Act, introduced in the Union Budget 2021, which mandates the exemption of tax deduction at source (TDS) on the specified sums paid to senior citizens who meet certain conditions.
Q.2 Who is eligible for the benefit of Section 194P?
A. Senior citizens who are 75 years or older, resident in India, and have income only from pension and interest from a bank or post office, and no other income are eligible for the benefit of Section 194P.
Q.3 What are the specified sums under Section 194P?
A. The specified sums under Section 194P include the interest income earned by the specified senior citizens from the bank or post office where they have maintained the accounts. The interest income should not exceed Rs. 50,000 in a financial year.
Q.4 What is the rate of TDS under Section 194P?
A. The rate of TDS under Section 194P is nil. No TDS will be deducted on the specified sums if the senior citizen meets the conditions mentioned under the section.
Q.5 What is the Form No. 12BBA?
A. Form No. 12BBA is a declaration that the specified senior citizen needs to furnish to the bank or post office where the account is maintained to claim the benefit of no TDS under Section 194P.
Q.6 Is it mandatory to file the Form No. 12BBA?
A. Yes, it is mandatory to file the Form No. 12BBA to claim the benefit of no TDS under Section 194P.
Q.7 What happens if the senior citizen fails to furnish the declaration in Form No. 12BBA?
A. If the senior citizen fails to furnish the declaration in Form No. 12BBA to the bank or post office, the bank or post office will deduct TDS on the interest income at the normal rates.
Q.8 What is the penalty for non-compliance with the provisions of Section 194P?
A. Non-compliance with the provisions of Section 194P may attract a penalty under Section 271CA of the Income Tax Act.
