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Senior citizen tax benefits: Pension, deductions, Income Tax slabs

Senior citizens have higher deduction limits and exemption benefits than younger taxpayers

pension, insurance, savings, senior citizen, employment, NPS, PFRDA

Ayush Mishra New Delhi
Calculating Income Tax for senior citizens is crucial for managing their finances. They are entitled to benefits and are not subject to the same tax rates as younger individuals. Let us understand the tax senior citizens have to pay:
 
Are pensions subject to taxation?
 
Pension income is taxed as income from salary, and the taxability depends on whether the pension is commuted or uncommuted.
 
Commuted pension, which is received as a lump sum, is partially exempt from tax. For non-government employees, 1/3rd of the pension amount is exempt if received with gratuity, and 1/2 if not received with gratuity. Government employees receive their commuted pension fully exempt from tax.
 
Uncommuted pension, which is received periodically, is fully taxable. This type of pension is treated as income from salary and is subject to the same tax rates as regular income.
 
Income Tax slab on pension in new regime
 
Under the new tax regime, Income Tax on pensions is structured as follows: Pension up to Rs 3 lakh are not taxed. For pension between Rs 3 lakh and Rs 6 lakh, a 5 per cent tax rate is applied. Pension between Rs 6 lakh and Rs 9 lakh is taxed at a rate of 10 per cent. For pensions ranging between Rs 9 lakh and Rs 12 lakh, the tax rate is 15 per cent, and pensions between Rs 12 lakh and Rs 15 lakh are subject to a 20 per cent tax rate. Pensions exceeding Rs 15 lakh are taxed at 30 per cent.
 
Finance Minister Nirmala Sitharaman, in Budget 2023, had said that under the new tax regime, taxpayers with an income of up to Rs 7 lakh will not be charged any tax. With the standard deduction, the non-taxable income under the new tax regime is nearly Rs 7.5 lakh.
 
Income Tax slab on pension in old tax regime
 
Under the old tax regime, pension income is subject to specific tax rates based on the amount received. There is no tax on pension income up to Rs 3 lakh. For pension amounts exceeding Rs 3 lakh but up to Rs 5 lakh, a tax rate of 5 per cent is applied. Pension income between Rs 5 lakh and Rs 10 lakh is taxed at a rate of 20 per cent. For pension income exceeding Rs 10 lakh, a tax rate of 30 per cent is imposed. This structured approach helps in progressive taxation, ensuring higher earners contribute more in taxes.
 
Income tax exemption for senior citizens
 
Senior citizens (60 years and above) can claim a standard deduction of Rs 50,000 annually on their pensions. This deduction applies to annuity payments, which are taxed similarly to salaries.
 
Senior and the so called super senior citizens (80 years and older) can claim deductions of up to Rs 50,000 for medical expenses and health insurance premiums under Section 80D.
 
Dependent seniors can claim a deduction of up to Rs 1,00,000 for treating specified critical illnesses under Section 80DDB.
 
Senior citizens can get a deduction of up to Rs 50,000 on their annual income from interest earned on fixed deposits in banks or post office deposits under Section 80 TTB.
 
The TDS or Tax Deducted at Source on interest has been increased to Rs 40,000. This means that senior citizens who invest up to Rs 6,00,000 in a fixed deposit with an interest rate of approximately 7 per cent per annum can save tax, as no TDS will be deducted.
 
Senior citizens with high-interest income from bank deposits can submit Form 15H to the bank. This form serves as a declaration to claim certain receipts without the deduction of tax.
 
Resident senior citizens without any income from business or profession are not required to pay advance tax.
 
Senior citizens can use the reverse mortgage facility, which is applicable only against a fully owned and self-acquired home, not one that is a gift or inheritance. The senior citizen must own a permanent residence that is at least 20 years old.
 
"Pension is categorised as salary income and is taxed according to the taxpayer’s applicable slab rates. For senior and super senior citizens, pension income is taxable based on its source. If the pension is received from a former employer, it is taxed under income from salary. Conversely, if the pension is received from the government, it is taxed under income from other sources. If you are a government employee, the commuted portion of your pension (the lump sum amount) is exempt from tax. However, the regular pension payments you receive afterward are fully taxable under the category income from salaries,” said Adhil Shetty, chief executive officer of Bankbazaar.com.

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First Published: Jul 10 2024 | 12:21 PM IST

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