Union Budget 2021 India: The amount of pension received is added to one’s income and is taxed as per the income tax slab. In case of senior citizens between age 60 and 80, income up to Rs 3 lakh is tax exempt while for those who are above 80 years, income up to Rs 5 lakh is exempted from tax.
Budget 2021-22: Even interest received from the Senior Citizens Savings Scheme is taxable which the senior citizens want to be made tax-exempt.
Indian Union Budget 2021-22: The Budget 2021 to be presented by finance minister Nirmala Sitharaman will be keenly watched by senior citizens. Interest rates have been sliding downwards for the last few years and has impacted the regular income needs of investors, especially the retired. The inflation is not looking to go away in a hurry in 2021 which could make the cost of living dearer.
With rising medical costs and after paying a high premium for health and life insurance, the imposition of tax on the annuity income of senior citizens is leaving them with limited funds to meet their household needs. The senior citizens may expect some income tax relief or enhancement in existing tax incentives to help them meet their household expenses.
Tax-free pension One big relief that can come the senior citizens’ way is to make pension tax-free in their hands in the year of receipt. When all through their earning period spanning over 2-3 decades, they have paid tax on their income, it is fair that their annuity income gets relief from taxation during the retired years. Annuity or regular pension is received from several schemes such as immediate annuity scheme, NPS, Pradhan Mantri Vyay Vandna Yojna (PMVVY) or even the pension received after superannuation. NPS is a popular investment option to save for retirement. While the commuted portion at age 60 is tax-exempt, the monthly annuity received thereafter is taxable in the hands of investors. Even interest received from the Senior Citizens Savings Scheme is taxable which the senior citizens want to be made tax-exempt.
The amount of pension received is added to one’s income and is taxed as per the income tax slab. In case of senior citizens between age 60 and 80, income up to Rs 3 lakh is tax exempt while for those who are above 80 years, income up to Rs 5 lakh is exempted from tax.
To illustrate, if a taxpayer has accumulated an NPS corpus of Rs 50 lakh on his 60th birthday, then he can take back 60% of the same, i.e., Rs 30 lakh as tax-exempt commuted portion. Now on the balanced amount of Rs 20 lakh if he takes an annuity with annual return of 6%, his annual annuity income will be `1.2 lakh or Rs 10,000 per month. As per the current tax provision, this annuity income is fully taxable and if the senior citizen is in the 30% tax bracket, his net annuity income will be only Rs 7,000 per month. By making this tax-exempt, the government can give additional spending amounts up to Rs 3,000 per month, which would be a big relief for senior citizens.
The government may also introduce a new tax-free pension scheme for senior citizens. Introducing a tax-free annuity scheme will help the retired enjoy the annuity stream without worrying about taxation. The government may also provide a cut-off limit up to which the pension received from existing schemes could be tax-exempt.
Another big relief that taxpayers including senior citizens are looking forward to is that the government does not introduce any new tax in the form of cess or surcharge. Any new tax may bring down the take-home income, leaving less for meeting regular expenses. If there is more money left in the hands of the individuals, more will be the incentive to invest and spend the balance. Both personal investments and consumer spending are instrumental in giving a boost to the economy in the long run.