For those aged 75 years and above, Budget 2021 has a concession. Finance Minister Nirmala Sitharaman said in her budget speech that taxpayers over the age of 75 are exempt from filing income tax returns. The proposal sounds good on paper, but it comes with a lot of conditions. Is the process as easy as it sounds?The Proposal
In her own words: We shall reduce the compliance burden on our senior citizens who are 75 years of age and above. For senior citizens who only have pension and interest income, I propose exemption from filing their income tax returns. The paying bank will deduct the necessary tax on their income."
Let’s get this straight. This concessions proposed by the Finance Minister do not mean that those over 75 with only pension and interest income, will not be required to pay income tax. Many senior citizens got euphoric after listening to the budget speech on television and mistakenly thought it to be that way.
Freedom with strings attached
The exemption, in fact, is not from paying taxes but from filing returns, subject to certain conditions.
The first and foremost condition is that the senior citizen should not have any income from sources other than pension and interest.
The second rule, as explained by the Finance Ministry officials later, is that the pension account and fixed deposits should be in the same bank. So, the bank will deduct the applicable tax at source, obviating the need for payment of taxes separately by the assessee.
The third condition is that the senior citizen having fixed deposits in two or more banks will not be exempted from filing returns. The same will be true if one is getting interest income from deposits in post offices or any other fixed income scheme.
There’s more. The fourth condition says that senior citizens having income from investments in mutual funds, shares, insurance schemes, debt instruments etc. will not be exempt from filing income-tax returns.
And last but not least, the senior citizens will be required to file returns to seek refund in case excess tax is paid to the exchequer.
The thought process is that if a senior citizen can manage multiple bank accounts and obtain income from several sources, she can file income returns.
Archit Gupta, Founder and CEO, ClearTax says more details are awaited from the tax department on rules around the implementation of the new provisions. "So far it appears that the bank account, bank deposits and pension income must all be in the same ‘specified bank.’ For senior citizens having accounts in different specified banks and seeking exemption from filing income-tax returns will require these banks to be connected with each other to seek information such as total income and corresponding tax liability and TDS thereon," Gupta says.
When asked if individuals with only one account for pension and interest income are eligible, then why does the Finance Bill mention chapter VI-A deductions (consisting of several deductions available to tax assessees under sections 80A to 80T), Gupta says, "One way that this can happen is that the senior citizen will intimate the bank about any tax deductions she wants to claim as eligible under chapter VI-A, so that TDS can be adjusted by the ‘specified bank’. All chapter VI-A deductions should be allowed to be claimed. The presumption is not that the senior citizen does not have taxable income, rather all TDS is taken care of and only two types of incomes are earned – interest and pension – and therefore adjustment of TDS towards deductions claimed will be allowed by the specified bank," Gupta opined.
On post office savings deposits and SCSS interest earned, Vaibhav Sankla, Principal, Billion Basecamp Family Office was of the opinion that if SCSS is held with the same bank, the taxpayer would still be able to claim exemption from filing as long as he or she meets all other conditions.
"However, if the taxpayer has taxable income from his post office savings schemes such as NSC or POTD or RD, he won’t be able to claim exemption from filing," says Sankla. He further says that for people with only pension and interest income, ITR Sahaj will be applicable, which is simple and comes with pre-filled details.
Given that the assessee still has to give a declaration to the bank, which could ask for documents to verify, is it a better idea to simply file returns? Sankla replies: "Absolutely. The taxpayers would rather prefer e-filing of his returns as they don't need to attach any documents. The process is made even easier now with the profiled tax returns."Moneycontrol’s view
Income-tax experts say that it’s highly unlikely that the interest and pension income of many citizens land up in the same bank account. But if you fit this bill, you can benefit from the scheme when it is formally rolled out. Of course, it remains to be seen how many banks figure in the ‘specified’ list and what sort of documentary evidence they ask from you to make sure you are not concealing income elsewhere. And finally, how banks demonstrate their wherewithal to process your details seamlessly is another challenge.Unless the government announces more details and makes it worth your while, it makes sense to actually file your income-tax returns. Anyway, you are not exempt from paying your income-tax, so the convenience is minimal, especially if you already have a chartered accountant who files your tax returns on your behalf every year.