3 min read.Updated: 17 Feb 2021, 06:23 PM ISTRenu Yadav
Currently, in case a super senior citizen has an interest income of ₹5 lakh in a financial year, he is not liable to file ITR. However, as per the new proposed provision no exception is provided in case a person is not eligible to file ITR.
The new proposed TDS (tax deducted at source) rules which will be applicable from 1 July may result in banks deducting TDS at higher rates as the new rule doesn’t provide any exception in those cases where the person is not eligible to file income tax return (ITR). Therefore, it may be possible that banks may deduct TDS at a higher rate from the interest income of super senior citizens (those aged above 80) which generally park bulk of their retirement corpus in bank deposits.
As per income tax law a person whose income is below the exempted limit is not required to file an ITR. In case of super senior citizens income up to ₹5 lakh is exempted from tax.
Therefore, in case a super senior citizen has an interest income of ₹5 lakh in a financial year, he is not liable to file ITR. However, as per the new proposed provision no exception is provided in case a person is not eligible to file ITR.
As per the proposal, TDS will be deducted at twice the applicable rate as per the Income Tax Act or 5%, whichever is higher in case the person hasn’t filed ITR for the past two years (and the time limit for filing the ITR is also over) and a TDS of more than ₹50,000 was deducted in each of the past two years from that person.
“As of now there is no such exemption to the payer but one has to wait and watch once the bill gets enacted," said Neeru Ahuja, Partner, Deloitte India.
Banks are required to deduct TDS at the rate of 10% in case of interest income is more than ₹40,000 ( ₹50,000 in case of senior citizens) in a financial year. In case of ₹5 lakh interest income, TDS at the rate of 10% works out to be ₹50,000. Therefore, banks may deduct TDS at 20% instead of 10% in such cases.
Explaining it with example Naveen Wadhwa, deputy general manager, R&D, Taxmann said, “ Suppose, Mr A (aged 80 plus years) earned interest income of Rs. 5,00,000 in both the preceding years. TDS of Rs. 50,000 has been deducted under Section 194A in each year. As his income was below the maximum exemption limit, he was neither liable nor he furnished the return of income of the relevant period. In the current year, the tax now will be deducted at the higher rates prescribed under Section 206AB."
One can avoid deduction of TDS by the bank by submitting Form 15G/15H which is a declaration that your income is below the exempted limit. Form 15H is used by senior citizens of age above 60 years. However, there is no clarity on this part as well whether exemption will be provided to those who have filed Form 15G/15H or not.
“The new TDS rule doesn’t provide any exemption in cases where the person has filed Form 15G/15H from deducting TDS at a higher rate. Therefore, banks may deduct TDS at the rate of 20% from super senior citizens in case they have not filed ITR, even if they were not liable to due to income below exempted limit, in the previous years as per the proposed tax rules," said Prakash Hege, a Bengaluru-based chartered accountant.
“The government should think through the implications of the proposed rule and should not hurry the implementation of these rules," said Gautam Nayak, Chartered Accountant.
Also, the government has proposed a new rule under which senior citizens aged above 75 years are not required to file income tax return in case they have only pension income and interest earned from specified bank accounts. There is no clarity on what will happen in such cases.