Kameswaran, who is 78 years of age is a retired Bank officer whose source of income includes interest from fixed deposits, SB A/c, post office savings schemes and pension. His total income after considering all deductions amount to Rs. 4,80,000 for financial year 2020-21. Kameswaran feels he need not file his income tax returns as his total income is below 5 Lacs. Is he correct?
An individual is liable to file income tax returns if his/her gross total income exceeds the basic exemption limit for a financial year.
BASIC EXEMPTION LIMIT
Basic exemption limit under the old regime for a senior citizen (60 years to 79 years) is Rs. 3 Lacs and for super senior citizens (80 years plus) is Rs. 5 Lacs. Basic exemption limit if one opts for the new regime remains Rs. 2.5 Lacs irrespective of the age.
There is a generic perception amongst tax payers that one does not have to file income tax returns if the income is below 5 Lacs. Some of the common questions that tax payers have – What is the math behind this 5 Lac limit? Is it applicable in general for all? If so is the basic exemption limit actually revised to Rs. 5 Lacs?
REBATE u/s 87A
If the total income (gross total income minus deductions under chapter VI A) is below Rs. 5 Lacs, a rebate of upto Rs. 12,500 can be claimed u/s 87A.
This rebate is applicable only if the total income is upto Rs. 5 Lacs. Once this threshold is crossed, a taxpayer cannot claim rebate u/s 87A.
Hence in effect the tax liability of a person whose total income is less than or equal to Rs. 5 Lacs will be NIL.
Kameswaran’s total income after deductions (assuming he has opted for the old regime) is below Rs. 5 Lacs. Hence his tax liability would be nil. But he can take advantage of this rebate only if the income tax return is filed.
Hence Kameswaran is not exempted from filing his income tax returns for FY 2020-21.
The provision with respect to senior citizens of 75years or more of age not liable to file ITR is applicable only from next year (FY 2021-22 / AY 2022-23)
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