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  • Exemption from Payment of Advance Tax to Resident Senior Citizen

    Overview:

    Section 208 of the Income Tax Act states that each and every taxpayer or assessee, who’s tax liability for the year prior to the assessment year is more than Rs 10,000, is liable to pay advance tax. With regards to senior citizens, however, any senior citizen who earns income in the form of rent, deposit interest etc, is saddled with an increased burden of compliance when it comes to advance tax payment.

    Exemption from Payment of Advance Tax to Resident Senior Citizen:

    In a bid to make life easier for senior citizens, and to reduce their overall burden of tax compliance, Section 207 was ratified in the financial year 2012 - 2013 to state that any senior citizen will not have to pay advance tax provided the following conditions are fulfilled:

    • The senior citizen is an individual
    • The senior citizen in question is a resident of India
    • The senior citizen is an individual who is at least 60 years or more in age
    • The senior citizen does not earn any income that can be charged under the heading - Profits and gains of business or profession

    Benefit of Section 207 For Senior Citizens:

    Along with the benefit of not paying any advance tax, the ratification of Section 207 of the Income Tax Act also allows or permits a senior citizens to forgo his tax burden or liability through the payment of self assessment tax. This applies for all tax liabilities of the individual, with the exception of Tax Deducted at Source (TDS)

    Examples of Exemption from Payment of Advance Tax to Resident Senior Citizen:

    The exemption of advance tax payment to senior citizens can be better understood with the following examples:

    Example One:

    • Mrs Robinson is a resident of India, and is currently retired. She is 68 years old and is earning an income of Rs 35,000 via the rental of an apartment. She does not earn any income from any other avenue except the income from rent. Will Mrs Robinson be required to pay any advance tax?

      As per Section 208 of the Income Tax Act, an assessee is liable to pay advance tax if his or her taxation liability for the previous year is more than Rs 10,000. However, in the case of Mrs Robinson, she will not be required to made an advance tax payment since she fulfills the following criteria under Section 207

      • She is a resident of India as prescribed in the Income Tax Act
      • She is an individual
      • She is above the age of 60 years
      • She does not earn any income that falls under the category Profits and gains of business or profession

      Since Mrs Robinson fulfills all of the criteria under Section 207 of the Income Tax Act, she will not be liable to pay tax in advance.

    Example 2:

    • Mr Joshi is a resident of India, and has recently retired from his field of work. He is 54 years old and earns an income of Rs 47,000 via the rental of a house he currently owns. However, this is his only source of income, with no other income coming in from any other source. Will Mr Joshi be required to pay any advance tax?

      As per Section 208 of the Income Tax Act, an assessee is liable to pay advance tax if his or her taxation liability for the previous year is more than Rs 10,000. But as per Section 207, an assessee will not have to make an advance tax payment if the following conditions are fulfilled:

      • The person is an Indian resident as prescribed by the Income Tax Act
      • The person is an individual
      • The person is at least 60 years old or older
      • The person does not earn any income that can be charged under the heading - Profits and gains of business or profession

      While Mr Joshi, fulfills most of the criteria mentioned above, he is currently below the required minimum age of 60 years to be exempt from paying tax in advance. Therefore, in this case, Mr Joshi is not deemed to be a senior citizen as prescribed by the Income Tax Act, and will be liable to pay tax in advance for the year.

    Example 3:

    • Mrs Patel is a resident of India, and has recently retired from her job. She is 62 years old and earns an income of Rs 41,000 via the rental of a flat she currently owns. Following her retirement, she opened up a small departmental store for business purposes. Will Mrs Patel be required to pay any advance tax?

      As per Section 208 of the Income Tax Act, an assessee is liable to pay advance tax if his or her taxation liability for the previous year is more than Rs 10,000. But as per Section 207, an assessee will not have to make an advance tax payment if the following conditions are fulfilled:

      • The person is an Indian resident as prescribed by the Income Tax Act
      • The person is an individual
      • The person is at least 60 years old or older
      • The person does not earn any income that can be charged under the heading - Profits and gains of business or profession

      While Mrs Patel, fulfills most of the criteria mentioned above, she currently earns income under the category of ‘Profits and gains of business or profession’. Due to this, she will be liable to pay tax in advance for the year.

    Example 4:

    • Mr Rahul is a non-resident of India, and is retired at the moment. He is 67 years old and earns an income of Rs 35,000 by renting out an apartment he owns in Bangalore, but does not have any other means of income. At present, he lives in the United States of America. Will Mr Rahul be required to pay any tax in advance as per Indian Income Tax laws?

      As per Section 208 of the Income Tax Act, an assessee is liable to pay advance tax if his or her taxation liability for the previous year is more than Rs 10,000. But as per Section 207, an assessee will not have to make an advance tax payment if the following conditions are fulfilled:

      • The person is an Indian resident as prescribed by the Income Tax Act
      • The person is an individual
      • The person is at least 60 years old or older
      • The person does not earn any income that can be charged under the heading - Profits and gains of business or profession

      In the case of Mr Rahul, he fulfills all criteria outlined above with the exception of his residential status. Being a non-resident of India immediately disqualifies Mr Rahul from availing any exemption benefits under Section 207, which means he will be liable to pay tax in advance for the year.

    Example 5:

    • Matthuga Private Limited is a company involved in the business of manufacturing of stationery products for schools and colleges. However, the company has shut down its business in recent times and earns an income of Rs 52,000 per month solely through the rental of a property it owns in Mumbai, which it has rented out to another business. Will the company be required to pay tax in advance?

      As per Section 208 of the Income Tax Act, an assessee is liable to pay advance tax if his or her taxation liability for the previous year is more than Rs 10,000. But as per Section 207, an assessee will not have to make an advance tax payment if the following conditions are fulfilled:

      • The person is an Indian resident as prescribed by the Income Tax Act
      • The person is an individual
      • The person is at least 60 years old or older
      • The person does not earn any income that can be charged under the heading - Profits and gains of business or profession

      In this case, the entity in question is not an individual, hence no exemption will be permitted. Therefore, the company will be liable to pay tax in advance for the year.

    Frequently Asked Questions:

    1. Does the exemption from payment of advance tax for resident senior citizens under Section 207 apply to Hindu Undivided Families (HUFs) as well?

      A) No. Exemption from the payment of tax in advance under Section 207 is permitted only to individual senior citizens. Therefore an HUF will not be able to claim tax exemption under this section of the Income Tax Act.

    2. Can a person who will attain the age of 60 years old sometime during the year, claim exemption from payment of advance tax under Section 207?

      A) Yes. An individual resident of India who attains the age of 60 years or more at any time of the year, and who does not earn any income under the heading ‘Profits and gains of business or profession’, will not be liable to pay tax in advance for the year. 

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