All you need to know about Section 194 P of the income tax act

Introduction

The Income Tax Act of 1961 sets the foundation for taxation in India. It outlines the guidelines and regulations that individuals and businesses must follow while paying taxes. The Finance Act, 2021 introduced several amendments, one of which includes Section 194P. This provision specifically addresses senior citizens and aims to simplify their income tax return filing process. In this blog, we will delve into the details of Section 194P, including its objectives, applicability, and the TDS rate associated with it.

What is Section 194P?

Section 194P is a newly introduced provision under the Income Tax Act, which came into effect as part of the Finance Act, 2021. Its primary objective is to ease the burden of income tax return filing for senior citizens. It recognizes the unique challenges faced by this demographic and endeavors to streamline the process, thereby this will help to promote their financial independence.

Section 194P – Exemption for Income Tax Return Filing for senior citizen 

Section 194P provides a conditional relief to senior citizens above the age of 75 years from filing the income tax return. The section provides that senior citizens who are residents of India and have income only from pensions and interest are exempted from filing their income tax returns. Following are conditions to be applicable under Section 194P:

• The senior citizen should be of age 75 years or above.
• The senior citizen should be a resident in the previous year.
• The senior citizen should have income only from pension and interest.

Simplified Income Tax Return Filing

Under Section 194P, eligible senior citizens are exempted from the requirement of filing income tax returns if certain conditions are met. This provision is applicable when the only income source for a senior citizen is interest from fixed deposits or recurring deposits maintained with banks, cooperative societies, or post offices. The income should be subject to TDS (Tax Deducted at Source) under Section 194A.

TDS Rate under Section 194P

The Finance Act 2021 introduced a revised TDS rate for senior citizens falling under the conditions of Section 194P. The TDS rate has been reduced to 5% from the previous rate of 10%. This reduction aims to provide senior citizens with more liquidity and financial flexibility. It is important to note that the reduced TDS rate does not exempt senior citizens from paying income tax. They are still liable to pay tax based on their overall income, but the TDS deduction is now lower.

ITR filing for senior citizen  

Senior citizens who do not meet the conditions for exemption under Section 194P are required to file their income tax returns. The Income Tax Department has provided various forms for ITR filing for senior citizens. The following forms are applicable for senior citizens and super senior citizens for AY 2023-2024:

• ITR-1 (SAHAJ) – Applicable for Individual
• ITR-2 – Applicable for Individuals and HUFs not having income from profits and gains of business or profession
• Form 16 – Details of Tax Deducted at Source on salary
• Form 16A – Details of TDS on Income other than Salary
• Form 67- Details of transactions with non-residents for tax purposes
• Form 3CB/ 3CD – Tax audit report
• Form 3CEB – For filing transfer pricing documentation

What are the benefits under Section 194P?

The benefits under Section 194P are listed below-:

1. Simplified Income Tax Return Filing: Section 194P aims to simplify the income tax return filing process for senior citizens. Eligible individuals who have income solely from fixed deposits or recurring deposits maintained with banks, cooperative societies, or post offices are exempted from filing income tax returns.

2. Reduced TDS Rate: The Finance Act 2021 introduced a reduced TDS rate of 5% under Section 194P for senior citizens. This reduction provides senior citizens with more liquidity and helps them manage their finances more effectively.

3. Hassle-Free Compliance: By exempting eligible senior citizens from the requirement of filing income tax returns, Section 194P reduces the compliance burden as it recognizes their unique financial circumstances and promotes their financial independence.

4. Financial Flexibility: The reduced TDS rate allows senior citizens to have more disposable income at hand. This can be particularly beneficial for those relying on fixed deposits or recurring deposits as their primary source of income.

5. Inclusive Tax System: Section 194P reflects the efforts to make the tax system more inclusive and supportive of diverse taxpayer segments. By addressing the specific needs of senior citizens, it acknowledges their contribution to the economy and endeavors to ease their tax compliance process.

Conclusion

Section 194P of the Income Tax Act 1961 brings ease to senior citizens by simplifying the ITR filing process and reducing the TDS rate. This provision acknowledges the unique financial circumstances of senior citizens, who predominantly rely on fixed deposits and recurring deposits for their income. By exempting them from the requirement of filing income tax returns and reducing the TDS rate, senior citizens can enjoy a more hassle-free approach to tax compliance. It is crucial for eligible senior citizens to understand the applicability of Section 194P and ensure they comply with the necessary procedures to avail its benefits. As the tax landscape evolves, such provisions aim to make the tax system more inclusive and supportive of diverse taxpayer segments.