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February 1, 2021

Know all Condition for Senior citizens for Exempt to File Income Tax Returns as per Budget 2021

by Rubina Dsouza in Income Tax

Know all Condition for Senior citizens for Exempt to File Income Tax Returns as per Budget 2021

Introduction

The Union Budget of India, also referred to as the Annual Financial Statement in the Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialised before the beginning of new financial year in April. India’s Finance Minister Nirmala Sitharaman announced the annual budget on February 1, 2021 – paperless for the first time in the history of India. The Finance minister in her Budget 2021 speech announced a slew of taxation reforms along with an increased spending on healthcare with Rs. 35,000 crore on Covid-19 vaccine development. 

Benefit provided to senior citizens in the Budget

In India majority of older persons face financial hardship in old age as most of them are not in a position to earn their livelihood. Their savings, if any, are not enough to meet their day to day, particularly the medical expenses. Older persons with good net-worth value are in search of good short-term financial planning to earn a good income from their finance. The Income Tax law provides various benefits to senior citizens in India with the view to mitigate their issues.

Budget 2021 proposes to exempt senior citizens who are 75 years or above and have only pension and interest income in a financial year, from filing income tax returns. As per the Budget 2021 proposals, they will not be required to file income tax returns (ITR) anymore. The bank paying income to them will deduct the necessary tax from their bank account.

Who is considered as a Senior Citizen in India?

According to the law, a senior citizen is an individual resident between the age group of 60 to 80 years, as on the last day of the previous financial year.

Who is considered as a Super Senior Citizen in India?

A super senior citizen is an individual resident who is above 80 years, as on the last day of the previous financial year.

Even before Budget, senior citizens were not required to file ITR in certain cases:

Just because a senior citizen has been filing an ITR all his life does not necessarily mean that he/she is mandatorily required to file an ITR. Many a times, senior citizens continue filing their ITR’s even when they are not required by law. This may happen due to misinformation, fear of income tax penalties, lack of knowledge etc. Given below are certain situations where a senior citizen will not be required to file their ITR.

No taxable income after turning 60

The basic tax exemption limit for normal citizens below 60 years of age is Rs 2.5 lakh in a financial year. But for Senior Citizens, the exemption limit is Rs 3 lakh, while for Very Senior Citizens, the limit is Rs 5 lakh.

So, a Senior Citizen doesn’t have to pay any tax or file ITR in case the annual income is up to Rs 3 lakh and no TDS is deducted during the financial year. Similarly, a Very Senior Citizen is exempted from paying tax and filing ITR if his/her annual income is up to Rs 5 lakh and no TDS is deducted.

Pension was below the exemption limit

Retirement age is the age at which a person is expected or required to cease work and is usually the age at which they may be entitled to receive superannuation or other benefits. In India, generally people retire when they reach the age of 60 to 65 years after which they receive benefits such as pension, which is taxable under Income Tax.

With a pension, the employer guarantees an income in retirement. Employers are responsible for both funding the plan and managing the plan’s investments. Not all employers offer pensions, but government organizations usually do.

Essentially, on retirement, if the employee opts for commutation of pension, a portion is paid as a lump sum to the pensioner while on the balance the pension begins. In simple terms, commutation means a lump sum payment in lieu of periodic payments of pension. In such a case, the amount of pension will be lower than the amount of pension without any commutation.

This would lead to situations where your pension income falls below the basic exemption limit i.e not taxable and hence not liable to file ITR. Therefore, it is important to remember that even if your salary income exceeded the basic exemption limit (making you liable to file your ITR), it does not mean that your lower pension also exceeds the limit. Verify if your pension exceeds the basic exemption limit. There are chances that you would not be liable to file your ITR in case they do not.

Filing an ITR depends upon nature of income

The ITR form applicable to a taxpayer is dependent on the type of taxpayer, whether individuals, HUF, company, etc., the nature of income and total income. You will not be required to file an ITR if you do not have taxable income under the 5 heads of income tax. To make an income chargeable, it should be under at least one of the five income heads:

  • Salary Income
  • House Property Income
  • Profits or Gains from Business or Profession
  • Capital Gains
  • Income from other Sources

For instance, suppose Mr A had properties from which he was earning rent. The same was taxable under the head ‘Income from House Property’. Mr A had no other source of income. In the current year, Mr A sold all his properties and was liable to pay capitals gains tax. He will file ITR in the current year declaring income under the head ‘Capital Gains’ and Income from House Property.’

However, from the subsequent year as Mr A will have no properties and thus no taxable income. Therefore, he will not be liable to file his ITR.

Senior citizens also receive a number of other benefits under Income Tax Provisions such as:

  • Deduction under Section 80TTB
  • Additional Deduction under Section 80D
  • Additional Deduction under Section 80DDB
  • Senior citizens are free from burden of paying advance tax unless they make income under the head ‘Profits and Gains from Business or Profession’.
  • Super Senior Citizens (individuals above 80 years) can file for their Income Tax Return through either ITR-1 (Sahaj) or ITR-4 (Sugam). They can choose to do it either manually or electronically, while no other assessee can file Offline Returns.

Thanks to attractive tax deductions and benefits, the Income Tax Law has provided an advantageous position for senior citizens in India.

Sitharaman also announced that the government planned to reduce timeline for reopening of tax cases to 3 years from 6 years. To further ease of income tax filing, capital gains from listing securities and interest income to come pre-filled in ITR’s.

Relaxation for certain category of senior citizen from filing return of income-tax (extract from Finance Bill 2021)

 

Section 139 of the Act provides for filing of return of income. Sub-section (1) of the section provides that every person being an individual, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income.

In order to provide relief to senior citizens who are of the age of 75 year or above and to reduce compliance for them, it is proposed to insert a new section to provide a relaxation from filing the return of income, if the following conditions are satisfied:-

(i) The senior citizen is resident in India and of the age of 75 or more during the previous year;

(ii) He has pension income and no other income. However, in addition to such pension income he may have also have interest income from the same bank in which he is receiving his pension income;

(iii) This bank is a specified bank. The Government will be notifying a few banks, which are banking company, to be the specified bank; and

(iv) He shall be required to furnish a declaration to the specified bank. The declaration shall be containing such particulars, in such form and verified in such manner, as may be prescribed.

Once the declaration is furnished, the specified bank would be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act, for the relevant assessment year and deduct income tax on the basis of rates in force. Once this is done, there will not be any requirement of furnishing return of income by such senior citizen for this assessment year.

This amendment will take effect from 1st April, 2021.

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