In the budget speech for the current year 2021, the honorable finance minister stated that senior citizens above 75 years of age need not file returns of income if they receive only pension and interest.
Media have worked over time the facts and one of the leading newspapers has, in its e version , went to the extent of saying that tax is exempted for such persons, which is far from truth.
Present scenario:
Under the present law, the pension payment office deducts TDS as per the income levels of the pensioner. Banks deduct TDS on the interest credited by them on interest at the rate specified by provisions of law. As of now is it 7.5%. The pensioner calculates tax payable and files the return by either claiming refund or paying the balance of tax
The catch is that the pensioner might be in the 5% slab. If the banker deducts 7.5%, he is entitled to refund of the excess TDS. If he crosses the limit and goes to higher slab, the TDS of the bankers would be less than the tax payable by the pensioner. Here again, the pensioner has to calculate and pay the balance of tax at the time of filing of the return of income.
Then what is the justification that he need not file the return of income? How would the pensioner be fulfilling his tax responsibilities if he does not file the returns? How would Government recover taxes from such persons?
The point not covered by the news agencies and the media is as under:
The exemption is only to those pensioners having deposits in the same bank from where he draws pension. The banker is burdened with the responsibility of deducting total tax and remitting it to the treasury. Banks have to turn a Good Samaritan and collect data from the pensioner about his eligible deductions u/s 80 and calculate the tax payable and recover it from the pension account.
The pensioner has to share all the information he was earlier sharing with his tax advisor with the banker now.
Normally the pensioner files his return of income before the due date which is 31 July as of now. Provisions of law for TDS are different from the provisions of self assessment tax. Since the deduction is for TDS, the amounts need to be paid before 7th day of the subsequent month, being 7th April.
The depth of knowledge of the bank employees as far as tax provisions are concerned is a question mark. Bank staff is already burdened with audits in the first week of April. Additionally this job is thrust on them. The banker is short of time and has a heavy workload in the first week in preparing for the branch audit and this is additional work load on them.
It remains to be seen how effectively this proposal will be implemented and the banker reaction to the same.
