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  1. As returns filing date nears, here are some tax-savings tips for senior citizens

As returns filing date nears, here are some tax-savings tips for senior citizens

Raju is 61 years old and earns an annual income of Rs.10,50,00, while his father Mahesh is 85 and gets an annual income of Rs 6,00,000.

By: | New Delhi | Updated: June 27, 2016 11:26 AM
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Any capital gains arising out of reverse mortgage of property and also any loan or transfer of instalment amount under reverse mortgage will be exempted from Income Tax.

Raju is 61 years old and earns an annual income of Rs.10,50,00, while his father Mahesh is 85 and gets an annual income of Rs 6,00,000. In the current income tax assessment financial year of 2016-2017, they both fall under taxable income brackets. However there are ways and means by which they can save on tax. Read on to know how!

Individuals above the age of 60 are generally referred to as senior citizens. However, the last few budgets have divided this class of individuals into:

Senior citizens: age between 60 years and less than 80 years (Raju)

Very Senior or Super Senior citizens: age above 80 years (Mahesh)

The annual financial budget of 2016 has given a lot of additional benefits for both, the senior citizens and super senior citizens. Proper planning and utilisation of the same will help both these categories of individuals save up a substantial amount on tax.

Tax Slabs and Tax Structure

The current income tax for senior citizens is captured in the following table:

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Points to be noted:

Senior citizens and Super Senior citizens are exempted from paying advance tax for any income not arising from business or profession.

The nil tax brackets is Rs 50,000 more for senior citizens and Rs 2,50,000 more for super senior citizens when compared to all those below the age of 60.

Additional Tax Benefits which can be availed under different sections

Senior Citizens and Super Senior citizens can use investments or savings under the following sections to reduce the income tax that they have to pay:

Section 80 C: Insurance, PPF, Equity Linked Mutual funds, 5-year lock in tax benefit oriented FDs of banks, and the Senior Citizen Savings Scheme (SCSS) from the post office are some examples.

Additionally, the interest from such of these FDs is exempt from TDS when furnished with form 15H. Banks give an additional interest of 50 basis points for senior citizens investing in tax saving deposits.

Section 80C for home loans: Senior and Super Senior citizens are allowed an income tax exemption of up to Rs 2,00,000 (it is Rs 1,50,000 for others) towards the payment of the principle of a housing loan (self occupied).

Section 24 for home loan interest paid: Senior and Super senior citizens are allowed an income tax exemption of up to Rs.3,00,000 on the interest paid on a housing loan (self occupied).

Section 80 D: This covers tax exemptions on medical expenses. Medical insurance premiums of up to Rs.30,000 are allowed for tax exemptions for senior citizens. In case of super senior citizens who do not have a medical coverage, an amount up to Rs.30,000 on medical expenses is eligible for income tax exemptions.

Section 80DDB: For treatment of specific ailments, Senior citizens get an income tax exemption up to a limit of Rs.60,000 while the limit is set at Rs.80,000 for Super senior citizens.

Section 80CCB (1B): Tax exemptions on investments up to Rs.50,000 under NPS (New Pension Scheme)

Reverse Mortgage: Any capital gains arising out of reverse mortgage of property and also any loan or transfer of instalment amount under reverse mortgage will be exempted from Income Tax.

Section 80TTA: An amount of up to Rs.10,000 accrued as interest on the savings bank account is eligible for income tax exemption.

Tax Planning Illustrations using the case of Mr Raju and Mr Mahesh

i. Mr Raju: Mr. Raju earns Rs 10,50,000.

Tax planning for Mr.Raju:

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We are assuming the maximum limit of tax exemption under every section

As can be seen, Mr.Raju will fall into a lower tax rate category if he invests in all the tax saving instruments. He will save a minimum of Rs.2,40,000 by availing of all the tax benefits which are given for senior citizens.

Mr Mahesh: His annual income is Rs.6,00,000.

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We are assuming the maximum limit of tax exemption under every section

As can be seen, Mr.Mahesh need not pay any income tax if he invests in some of the tax saving instruments as Super Senior citizens do not have to pay any tax for a taxable income of up to Rs.5,00,000.

Summarising, the income tax exemptions available for senior and super senior citizens:

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The author is CEO & Founder, Right Horizons

 

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