Budget 2018: Modi government has been very boastful about India being one of the youngest countries in the world. An entire young generation of young taxpayers have expectations from union budget 2018. With last year’s tax reform such as the GST and the upcoming year’s Lok Sabha elections, changes made will set the pace for Modi government. However, Arun Jaitley should think about the taxpayers, especially the ones over the age of sixty, that is the senior citizen taxpayers.
Gone are the days, where an individual moved away from regular economic activities as he retired. It is only the nature of income that shifts from active to passive in many instances now. The individual continues to be a taxpayer on account of earning income. India tax laws provide for certain additional tax benefits when the taxpayer becomes a senior citizen. Nevertheless, an enhancement is always sought after. With the Budget session coming up, a few thoughts on the tax wishlist for senior citizens are summarised herein.
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What does the current law provide for?
A taxpayer is considered as a senior citizen when he attains sixty years of age at any time during the tax year. Presently, a senior citizen who is a tax resident in India is entitled to enhanced tax exemption limit (INR 300,000 as against INR 250,000 for ordinary taxpayers) and is exempted from the advance tax obligation and automatic scrutiny selection. Further, additional deductions can be claimed if the medical insurance premium is paid/ medical expenses are incurred. However, the following tax breaks could make them happier.
Tax breaks – scope expanded
To start with, early retirees between the age of 55 and 60 can be considered as senior citizens for tax purposes. This is not a new proposition as the Senior Citizen Saving Scheme treats these early retirees as eligible for this scheme. This widens the coverage of benefits to the appropriate group.
Any tax payer’s expectation from a Budget is for an increase in taxable threshold. Senior citizens are no exceptions! Doubling this taxable limit could necessarily save the senior citizens from routine tax return and related compliances.
Income – minimum taxation and select expenses – maximum deduction
Next on the list is the taxability of income. Generally the income being passive comprises of pension, interest, dividend etc. Pension received in annuity can be taxed at special rates if it exceeds the taxable threshold. Deduction of INR 10,000 applicable on the interest received from savings account can be doubled for senior citizens. This deduction can also be extended to interest from fixed deposit – this being the major avenue for investment.
Further, with rising expenditure on treatment of ailments, an enhanced deduction for payment of health insurance premium (which is currently at INR 30,000) and expenses for medical treatment could be of good support.
Presently, investment in specific schemes are eligible for deduction under the overall ceiling. For instance deposit with Senior Citizen Savings Scheme is eligible for deduction subject to the overall ceiling of INR 150,000. It could be beneficial if these specific investments are eligible for deduction over and above the existing ceiling limit.
Taxing Compliances – eased up
Having discussed the taxability, it is pertinent to capture the impact of procedural requirements for senior citizens as well. Enumerated below are a few proposals that could ease the process of compliance.
According to prevalent regulations, Form 15H has to be submitted by the senior citizen if certain income is claimed to be received without deduction of tax. This document has to be submitted to each income payer. Instead of this, a senior citizen can opt to provide this information only once a year, in the tax portal or with an authorised agency. If this information could be linked with PAN, the income payers such as bankers can trace the data and determine the applicability of tax deduction without any physical form being filed by the senior citizen every time a deposit is made. On similar lines, for the senior citizen paying rent exceeding INR 50,000 per month, obligation to deduct taxes at 5% can be exempted.
Taxpayer and the tax man
Furthermore, senior citizens could have a separate tax grievance redressal mechanism for speedy resolution. At present, the regulations mandate necessary reasoning by the assessing officer to select a return of senior citizen for scrutiny assessment. This could still be refined by laying guidelines to handle the assessment – time limit for information collation, number of hearings, and window for closing the assessment once the required information is provided. This would definitely offer relief for taxpayers.
With enhanced benefits and simplified tax procedures, senior citizens will be happier and will believe in the saying, “Life starts at sixty”. Till the Budget, they will keep their fingers crossed.
Written by Sudhakar Sethuraman and Kavitha Jagadeesan. Sudhakar Sethuraman is Partner, Deloitte India and Kavitha Jagadeesan is Manager, Deloitte Haskins and Sells LLP.