Starting this financial year (2021-22; assessment year 2022-23), senior citizens over the age of 75, who draw income only from pension and fixed deposits, need not file income tax returns, provided they meet certain conditions.
Instead, they will have to declare their income in Form 12BBA, which has been notified by the Central Board of Direct Taxes (CBDT). They will have to submit this form to specified banks where they maintain their accounts and receive pension. Going by CBDT's notification wordings, most scheduled banks would qualify as specified banks.
Less paperwork, no visits to tax consultants
In her Budget 2021 speech earlier this year, finance minister Nirmala Sitharaman had announced this exemption for such senior citizens.
It will be the bank's responsibility to deduct the applicable tax at source after taking into account Chapter VI-A deductions, including sections 80C and 80D. So, such senior citizens will not have to pay taxes separately, reducing paperwork and visits to their tax consultants.
"This is a good step. When senior citizens deal with their banks' officials, the trust factor also makes the process easier. While e-filing is convenient, many are not comfortable with the online modes. In future, this could be even more automated, with pre-filled declarations being made available," says Sudhir Kaushik, Co-founder and CEO, Taxspanner.com. Tax experts believe that since their banks will largely have all their information, the entire process could be smoother.
"Many senior citizens are not conversant with income tax laws and e-filing is a hassle for them. This exemption will make such senior citizens' lives easier," says Karan Batra, Founder, Chartered Club. It will benefit senior citizens who saw their taxes being deducted at higher rates. "For example, if a senior citizen's annual taxable income is Rs 6 lakh, her bank will withhold 10 percent TDS (on fixed deposit interest earned), even though as per the slab rate applicable to her, the effective tax would be 5.6 percent. If she opts for the Form 12BBA route instead, only 5.6 percent tax will be deducted and she will not have to go through the process of claiming a refund from the tax department," explains Batra.
Too many conditions dilute the advantage
However, the exemption has its share of limitations. While the intention is to reduce the compliance burden on senior citizens, it is unlikely to benefit a large section of the elderly population, due to the number of eligibility conditions attached.
The main condition is that the senior citizen should not have any income from sources other than pension and interest.
But many senior citizens earn income from pension and fixed deposits.
Also, many senior citizens have accounts in more than one bank or post office. Such individuals will not be able to avail of this exemption. "People with multiple bank accounts will have to consolidate them if they want to avail of this facility," says Kaushik. Moreover, several senior citizens have started investing in company fixed deposits, liquid funds and other debt instruments to earn higher returns, and they will not be able to avail of the facility either.
Section 80C proof submission, a must
Also, if they wish to claim deductions under sections 80C or 80D, they will have submit the proofs to the bank. "The effect to the deduction allowable under Chapter VI-A shall be given based on the evidence furnished by the specified senior citizen during the previous year," the CBDT notification states.