Tax Benefits for Senior Citizens

July 21, 2021
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The Finance Minister Mr. Arun Jaitley in the Union Budget 2018 has offered a bundle of tax benefits for the senior citizens to ensure they don’t have to face any unnecessary financial burden. The government has made numerous announcements as a move to help them maintain good health and manage finances as well during their post-retirement life.

Union Budget has proposed to offer them a tax deduction on higher income from interest, tax benefits in healthcare, to name a few. Let’s discuss each of these tax benefits for senior citizens in detail.

New Tax Benefits introduced in Budget 2018

tax-benefits-for-senior-citizens

Interest Income is exempted up to Rs 50,000

The budget 2018 has increased the limit of tax exemption on interest income on deposits with the bank and post office schemes. A new section 80TTB has been introduced, which allows a tax deduction for interest income up to Rs 50,000 during a financial year and this new tax exemption limit would be applicable from the financial year 2018-19. The tax exemption limit allowed till financial year 2017-18 is Rs 10,000 annually.

The amount earned as interest income above Rs 50,000 will only be taxable as per the tax slab rates for senior citizens. As most of the senior citizens prefer to invest their retirement corpus in bank deposits and post office schemes, this increased tax deduction limit on interest income would provide them a sigh of relief as far as tax liability is concerned.

No TDS Deduction

For a senior citizen, the interest income earned from deposits in the bank and post office schemes up to Rs 50,000 will be exempted. No TDS will require to be deducted for such income, under section 194A. You need to submit form 15H, to ensure TDS is not deducted from your interest income.

Standard Tax Deduction

The budget 2018 has also introduced a standard tax deduction of Rs 40,000 (fixed) for pensioners. With this tax benefit, senior citizens can avail a straight deduction of Rs 40,000 during a financial year from his/her taxable income that will help them reduce the tax liability.

Increase in Tax Deductions under Section 80D

The tax deduction limit on health insurance premium for senior citizens has been increased to Rs 50,000 from Rs 30,000. The increased tax exemption limit will be in-force from the financial year 2018-19. For super senior citizens (above 80 years of age), this tax deduction limit has also been increased to Rs 50,000 and, it would be applicable from April 1st, 2018. This tax exemption limit is allowed under section 80D of the Income Tax Act.

Higher Deduction for treatment of specific critical illnesses

In the recent budget speech, the Finance Minister has increased the tax deduction limit towards medical expenses incurred for certain critical illness to Rs 1 lakh. Earlier, the deduction allowed was Rs 60,000 (for senior citizens) and Rs 80,000 (for super senior citizens). The increased deduction limit will come into force from FY 2018-19. The tax deduction for treatment expenses of specific illnesses is allowed under section 80DDB.

Increase in Investment under Pradhan Mantri Vaya Vandana Yojana

The finance minister in budget 2018 has extended Pradhan Mantri Vaya Vandana Yojana (PMVVY) Scheme till March 2020. In addition to an extension of the scheme, there has been an increase in limit on investment under the PMVVY scheme to Rs 15 lakhs from the existing limit of Rs 7.5 lakhs for a senior citizen. This pension scheme is for a period of 10 years and it gives the assured returns of 8% per annum. The pension is payable at the end of each period, depending on the frequency as chosen by the subscriber at the time of investment under the scheme.

Other existing Tax Benefits for Senior Citizens

Differential tax slab rate

Government has provided relief in the income tax slab rates for senior citizens, to those of non-senior citizens. The senior citizens having annual income of up to Rs 3 lakhs (Rs 5 lakhs for super-senior citizens) have no tax liability.

Taxability No Tax 10% Tax
Non-senior Citizen Up to 2.5 lakhs 2.5 to 5 lakhs
Senior Citizen Up to 3 lakhs 3 to 5 lakhs
Super-senior Citizen Up to 5 lakhs N/A

Non-payment of Advance Tax

Under section 208, every taxpayer whose tax liability exceeds Rs 10,000 in a financial year, requires to pay tax in advance as ‘Advance Tax’. However, as per section 207, a senior citizen not having any income from business or profession is not liable to pay advance tax.

No Tax Liability under Reverse Mortgage Scheme

Under the reverse mortgage scheme, a senior citizen has the option to mortgage his/her house with a housing finance company or bank that ensures a regular cash flow for his/her lifetime. It is helpful to those senior citizens whose income is extremely reduced after the retirement. The amount paid to senior citizens under the reverse mortgage scheme is exempted from tax.

On the death of the borrower or he/she is leaving home permanently, the property is sold and the loan repaid along with interest amount or legal heir can repay the amount without putting the property for sale.

Concluding Words

Senior citizens already enjoy differential tax benefits such as higher tax deduction limit on income earned, etc. In the Budget 2018, the finance minister has also provided extra tax benefits to senior citizens. These tax deductions/concessions will ensure the tax savings of about Rs 4,000 crores for seniors. With enhanced tax benefits, senior citizens will be happier with the minimal burden of tax liability on their shoulders.

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