8 Key Points Explaining Income Tax Benefits for Senior Citizens on Interest Income

Tax Benefits

8 Key Points Explaining Income Tax Benefits for Senior Citizens on Interest Income

The Income Tax Act’s Section 80TTB describes the tax advantages available to older persons for interest income from deposits. The new Section 80TTB provision is one of the incentives expressly aimed at older citizens that were added in the 2018 Finance Budget.

Tax Benefits

Under Section 80TTB, a person who is 60 years of age or older and an Indian resident for tax purposes can deduct ₹50,000 for interest earned on deposits made at the Post Office, Bank, and Cooperative Society during a year. Interest accrued on both fixed and savings accounts is subject to this deduction.

Interest on deposits made to these companies in whatever form, including savings bank interest, fixed deposit interest, and recurring deposit interest, is covered by this deduction. Above the total ₹50,000, interest earned on deposits made under the Senior Citizen Savings Scheme is also eligible for deduction.

Difference between Section 80TTA, and Section 80 TTB

Although they differ, Sections 80TTA and 80TTB both allow deductions for interest income. For savings accounts kept in banks, co-ops, or post offices, people under 60 years of age and Hindu Undivided Families (HUFs) are eligible for interest deductions up to ₹10,000 under Section 80TTA.

It’s crucial to remember that senior folks are not eligible for the advantages of Section 80TTA.

Eight Essential Points to Consider

1) A senior citizen is defined as a resident individual aged 60 years or above.

2) The interest pertains to deposits in banks, whether they are savings or fixed.

3) This includes interest from deposits in cooperative societies involved in banking activities, such as cooperative land mortgage banks or cooperative land development banks.

4) Interest earned on post office deposits is also covered.

5) Banks are not authorized to deduct any Tax at Source (TDS) from interest payments to senior citizens on deposits up to ₹50,000.

6) With the exemption of interest up to ₹50,000 under Section 80TTB, resident senior citizens have a higher limit of ₹50,000 for TDS on interest under Section 194A.

7) Any interest income exceeding ₹50,000 is subject to taxation based on the applicable slab rate for senior citizens.

8) Interest income derived from company fixed deposits, bonds, or Non-Convertible Debentures (NCDs) does not qualify for relief under Section 80TTB.

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Understanding Section 43B(h) of the Income Tax Act in Ensuring Prompt Payments to MSMEs

Section 43B(h)

Understanding Section 43B(h) of the Income Tax Act in Ensuring Prompt Payments to MSMEs

Section 43B(h)

Section 43B of the Income Tax Act of 1961 would have a new clause (h) inserted by the Finance bill of 2023. The aforementioned clause, which has been implemented through micro and small businesses, would have been included as a socio-economic welfare measure to ensure on-time payments. The Act’s Section 43B allows for certain deductions to be made on actual payments. The Finance Bill 2023 would have added a new clause to this section that would read as follows:

Section 43B (h)

Any amount that the assessee owes to a MICRO or SMALL enterprise after the deadline set forth in Micro, Small and Medium Enterprises Development Act, 2006, Section 15.

The aforementioned phrase indicates that in order to qualify for the claim reduction of the amount payable to be given to the micro and small firms, the payment must be made within the time frame established in Section 15 of the Micro, Small, and Medium firms Development Act, 2006.

Section 15 Deadline in MSME Act

According to Section 15 of the MSME Development Act of 2006, if a supplier provides any goods or services to a buyer, the buyer must pay the supplier on or before the date that the two parties have agreed upon in writing, or on the designated day in the absence of such an agreement.

With the caveat that the time frame agreed upon in writing by the buyer and supplier may never be longer than 45 days from the acceptance date or the day of considered acceptance.

The buyer will make the payment as per the agreement between the supplier and the buyer. However, the buyer cannot defer payment for longer than 45 days from the acceptance date, also known as the day of considered acceptance, which is the day the goods or services are accepted.

Consequences of Non-compliance with Section 15 Timeframe for MSME Payments

The buyer will be subject to penalties under the new Finance Bill 2023 clause (h) of Section 43B, as well as compensatory interest obligations under Section 16 of the MSME Development Act, 2006, and will be considered an ineligible business expense if they are unable to pay the supplier of goods or services as a company registered as a micro or small enterprise.

(i) Equitable to the Interest:

Regardless of anything stated in it, the buyer is responsible for filing the compound interest with the monthly rests on that amount from the appointed day to the supplier, or if it is from the date immediately following the date agreed upon, at three times the bank’s rate circulated through the Reserve Bank, if any purchaser would be unable to perform the payment of the amount to the supplier as needed under section 15. The RBI repo rate as of is the RBI-notified bank rate for the same topic.

(ii) Outlawing Interest Payments to MSMEs in Exchange for Compensation:

For the Income Tax Act of 1961’s computation, the interest due amount or paid through any buyer under the provisions of Section 23 of the MSME Development Act, 2006, would not be allowed as a deduction.

(iii) Disallowance for Expenses:

Any amount due from the taxpayer for the expenses incurred or the payment for purchases made to the supplier registered as a micro or small firm will not be permitted if the supplier fails to make the payment within the allotted time frame as stated in MSME Development Act, 2006, referenced above, Section 15.

Identification Procedure for Communities under Section 43B(h)

The condition would only apply to the amount owed to the Micro & Small Businesses. Therefore, the amount that must be paid to the Medium Enterprise is eligible for deduction on an accrual basis.

Definition of Enterprise According to MSME Development Act, 2006:

An enterprise, referred to by any name, is a business concern, industrial undertaking, or establishment engaged in the manufacture or production of goods related to industries listed in the First Schedule to the Industries (Development and Regulation) Act, 1951. It can also be involved in providing or rendering any service.

Types of Enterprises as Per MSME Development Act, 2006:

The Central Government has the authority to classify various types of enterprises, including proprietorships, Hindu undivided families, associations of persons, cooperative societies, partnership firms, companies, or undertakings, as micro, small, or medium enterprises. This section overrides Section 11B of the Industries (Development and Regulation) Act, 1951.

Section 43B(h)

The classification of enterprises into Micro, Small, and Medium categories, as outlined in the Micro, Small and Medium Enterprises Development Act, 2006, is provided below for your reference:

Micro Enterprise:
    • Investments below Rs. 1 crore
    • Turnover less than Rs. 5 crore
Small Enterprise:
    • Investments below Rs. 10 crore
    • Turnover less than Rs. 50 crore
Medium Enterprise:
    • Investments below Rs. 20 crore
    • Turnover less than Rs. 100 crore

It is advised for business entities to obtain an annual declaration from their respective suppliers, indicating their classification as micro or small enterprises registered under the Micro, Small and Medium Enterprises Development Act, 2006. This ensures compliance and facilitates purchasers in identifying the enterprise. Micro and small enterprises are encouraged to include a note on their invoices stating their enrollment under the MSME Development Act, 2006, for the convenience of purchasers in understanding compliance requirements.

Commencement Date of New Clause (h) under Section 43B

Starting April 1, 2024, clause (h) of Section 43B becomes effective. This provision mandates the inclusion of any outstanding amounts payable to micro and small enterprises, left unpaid beyond the specified duration in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006, into the income calculation under Section 28 of the Income Tax Act, 1961.

Assessment of Section 43B(h) Impact on the MSME Sector

The introduction of clause (h) in Section 43B of the Income Tax Act, 1961 has sparked debates. This clause, applicable from the Assessment Year 2023-24 onwards, pertains to expenses incurred on purchasing goods or services from Micro and Small Enterprises starting April 1, 2023. The definition includes industrial undertakings, business entities engaged in the manufacture or production of goods related to specific industries, or those providing services.

To qualify for deductions, payments must be made within 15 or 45 days, as specified in Section 15 of the MSMED Act 2006. Small enterprises must have investments not exceeding 1 Crore and turnover not exceeding 5 Crores, while medium enterprises should have investments not exceeding 10 Crores and turnover not exceeding 50 Crores. Enterprises involved in trading are excluded.

Despite the specified timeframe, deductions are allowed even if payments are made beyond the stipulated days within the same year, subject to the payment of compounded interest at a rate of 19.5%, which might be deemed high compared to the prevailing RBLR of 6.5%. The interest is considered penal in nature and raises questions about the possibility of waiver.

 

Applicability to All Taxpayers

This provision is seen to apply universally to all taxpayers, extending beyond manufacturers or industries to include professionals who acquire goods or services from MSMEs.

Udyam Registration and Section 43B(h) Benefits

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Old Tax Regime: Tax Rates and Deductions Under The Old Tax Regime

Old Tax Regime

Old Tax Regime: Tax Rates and Deductions Under The Old Tax Regime

Old Tax Regime

In the recently unveiled interim Budget 2024, the income tax slabs for the fiscal year 2023-24 in both the old and new tax regimes have remained unchanged. Various categories of individuals, including those below 60 years, senior citizens, and super senior citizens, encounter different tax rates within the old tax regime. The Income Tax Department, earlier this month, released notification for Income Tax Return (ITR) Forms 1-6 for the Assessment Year (AY) 2024-25, setting the submission deadline for ITR on July 31, 2024. Since the new regime automatically becomes the default option starting from FY 2023-24, taxpayers must actively choose the old tax regime if preferred.

Tax Slabs in the Old Tax Regime

 

Various categories of citizens, including those below 60 years, senior citizens, and super senior citizens, are subject to different tax rates within the old tax regime. Individuals below 60 years enjoy a tax-free threshold of Rs 2,50,000, with a 5% tax rate applied to incomes between Rs 2,50,001 and Rs 5 lakh. Incomes ranging from Rs 5,00,001 to Rs 10 lakh are taxed at a rate of 20%, while incomes exceeding Rs 10 lakh face a 30% tax rate.

Senior citizens aged 60 to 80 benefit from a higher exemption limit of Rs 3 lakh. Incomes between Rs 3 to Rs 5 lakh attract a 5% tax rate, with the remaining tax rates aligning with those applicable to general citizens. Super senior citizens aged 80 and above have a basic exemption limit of Rs 5 lakh. Incomes between Rs 5,00,001 to Rs 10 lakh incur a 20% tax rate, and amounts exceeding this threshold face a 30% tax rate. Similar to the new regime, a 4% cess is applied to the income tax amount, with surcharges for incomes exceeding Rs 50 lakh.

It’s essential to consider available tax-saving deductions under the old tax regime when deciding whether to opt for this system.

Tax-Saving Alternatives in the Old Tax Regime

 

80C Deductions

In the old tax regime, Section 80C emerges as a pivotal incentive, allowing deductions of up to Rs 1.5 lakh. Taxpayers can invest in instruments such as the National Pension System (NPS), Equity Linked Saving Schemes (ELSS), Unit Linked Insurance Plan (ULIP), and Public Provident Fund (PPF). Additionally, deductions of Rs 1.5 lakh are applicable to life insurance premiumscontributions to the Sukanya Samriddhi Account, National Savings Account (NSC), Senior Citizens Saving Schemes (SCSS), and fixed deposits. Section 80C also covers expenses like tuition fees for two children, registration charges, stamp duty for property, and home loan repayments.

Home Loan Payments

Taxpayers can avail themselves of a Rs 1.5 lakh tax exemption on principal and interest under Sections 80C and 24 subsections. First-time homebuyers can further benefit from a Rs 2.5 lakh rebate on home loan interest. Stamp duty and registration charges can also be deducted under Section 80C.

Old Tax Regime

Saving Bank Interest (80TTA)

Under Section 80TTA, a maximum tax exemption of Rs 10,000 on savings account interest is available, irrespective of age. This applies to deposits in banks, cooperative societies, or post office savings accounts.

Medical Insurance Premium (80D)

Taxpayers can claim up to Rs 25,000 for health insurance covering self, spouse, and dependent children. For insured individuals aged 60 years or more, the deduction limit increases to Rs 50,000. An additional deduction of up to Rs 50,000 for parents aged 60 years is available for their health insurance.

Education Loan (80E)

Tax exemption on the interest of children’s education loans is available under Section 80E without any limit. This benefit can be claimed by either parent who is repaying the loan.

House Rent Allowance (HRA)

Tax savings on HRA are applicable if one resides in a rented apartment. If the annual rent exceeds Rs 1 lakh, the tenant must provide the PAN of the landlord to claim exemption. In privately owned companies, employees in metro cities can have HRA of 50% of the basic salary, while those in non-metro cities can have 40% of the basic salary.

Overall, the old regime proves more advantageous when total deductions surpass Rs 1.5 lakhs, and individuals earn more than Rs 15 lakhs.

 

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