Senior Citizen Day: TDS and other tax benefits available exclusively to senior citizens

For income tax purpose, a senior citizen is an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.

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Today is the Senior Citizen day. World over the Senior Citizen Day is celebrated on August 21. With increasing life expectancy, people are living longer and the need for longer sustenance is becoming more relevant than in the past. On average, if an individual works for 30 years, the next 30 years could mean non-earning period but the household expenses will continue to be met. One’s post-retirement life will, therefore, largely depend on one’s earnings and investments during the working life. For a senior citizen, the aim should be to make the retirement corpus last longer.

Some of the common investment options for retirement that is far years away include, equity mutual funds, NPS and PPF. During the retired years, the common investment options include bank fixed deposits, Senior Citizen Saving Scheme ( SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY), post office MIS etc. While one may continue to invest in them, the impact of tax on income cannot be undermined as every penny saved as the tax will help in creating a larger corpus over the long term or in making the retirement corpus last longer. For income tax purpose, a senior citizen is an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year. While filing an income tax return (ITR), it is important that a senior citizen makes the optimum use of tax benefits.

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Here are a few tax benefits available exclusively to senior citizens:

1. Interest income from deposits – Section 80TTB

One of the most popular investment options for a senior citizen is a fixed deposit that comes with assured and a regular income in the form of interest. Such an FD can be with any front line commercial bank, co-operative bank or even in a post office time deposit. The interest income includes savings account and fixed deposits and is fully taxable in the hands of the investor.

However, there is a tax benefit available from such interest income. Under, Section 80TTB of the income tax act, interest income earned from deposits qualifies for a deduction from one’s gross total income. The maximum limit under section 80TTB is Rs 50,000 in a year. This section is available to senior citizens since April 1, 2018. Importantly, the benefit of section 80TTA, which allows deduction of the interest income (up to Rs 10,000) from the savings account, is not available to the senior citizens.

2. Health insurance premium – Section 80D

Health insurance premium in the case of senior citizens commands a higher premium as the morbidity rate is higher for them. On the premium paid towards a health cover for a senior citizen, there are tax benefits under section 80D. The premium paid could be for an individual plan or a family floater health plan. The maximum deduction is up to Rs 50,000 in a year on the premium paid. For a non-senior citizen individual, the limit is Rs 25,000 a year. So, if children pay a premium for self and for the parent, the total tax benefit can be Rs 75,000. further, there is an in-built limit of Rs 5,000 for the expense incurred for preventive health care by the individuals.

3. Medical expenditure – Section 80DDB

Senior citizens are likely to be more prone to different diseases. For the medical expenditure incurred on treatments of specified diseases, a senior citizen is allowed a deduction of up to Rs 1 lakh from one’s gross total income in a year. For a non-senior citizen below the age of 60 years, the limit stands at Rs 40,000. The treatment can be for oneself or a dependant. One needs to furnish a prescription for such medical treatment from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist to avail the tax benefit.

4. Form No 15H – New rule

Budget 2019 had increased the TDS threshold on interest earned on bank or post office deposits. The limit was raised from Rs 10,000 to Rs 40,000. This means on a deposit of nearly Rs 6 lakh at an assumed interest rate of about 7 per cent per annum, the annual interest earned will not be subject to TDS. Still, if one has interest income higher than that on deposits from one bank but has total income below the exemption limit, there are ways to not let the bank deduct TDS. In such a case, a senior citizen can furnish Form 15H to the banker. Form 15H is a declaration under sub-section (1C) of section 197A of the Income-tax Act, 1961 which is to be made by an individual who is of the age of sixty years or more claiming certain receipts without deduction of tax.

For the financial year 2019-20, CBDT had revised rules governing Form 15H. The new rule applicable takes into account the provision of section 87A and thus allows even those taxpayers who are eligible for rebate under Section 87A. Essentially, the CBDT has notified that the Form 15H declaration will also cover the Section 87A rebate. The new income tax rule provides that the declaration in Form 15H can be accepted from the person whose income is higher than the basic exemption limit but is eligible for Section 87A rebate where tax liability will be nil after taking in account Section 87A.

5. Exemption Limits – seniors and very senior citizens

Based on the age of the taxpayer, the income tax exemption limit differs. For those less than 60 years of age, the income up to Rs 2.5 lakh in a financial year is exempted. For those who are 60 years or above but less than 80 years, the limit is Rs 3 lakh, while for those who are 80 years or more, the exemption limit is Rs 5 lakh.

  • For senior citizens who are 60 years or below: On income between Rs 3 lakh and Rs 5 lakh, the income tax rate is 5 per cent, while on income between Rs. 5 lakh to Rs 10 lakh, the income tax rate is 20 per cent and on income above Rs 10 lakh, the tax rate is 30 per cent.
  • For senior citizens who are 80 years or above: On income between Rs 5 lakh and Rs 10 lakh, the income tax rate is 20 per cent, while on income between Rs. 10 lakh, the tax rate is 30 per cent.

For all taxpayers, there is a rebate under Section 87A. Further, on the income tax, Health and Education Cess of 4 per cent need to be added. Also, if net income is more than Rs 50 lakh but less than Rs 1 crore, a Surcharge of 10 per cent on the amount of income-tax is to be levied. For net income more than Rs 1 crore, a Surcharge of 15 per cent on the amount of income-tax is to be levied. The Health and Education cess of 4 per cent will be levied on the amount of income tax plus surcharge.

Budget 2019 has further taxed the super-rich by creating a new income slab for them as far as surcharge is concerned. A higher surcharge for income category falling between Rs 2 crore to Rs 5 crore and for those earning above Rs 5 crore will be there. The effective tax rate for them will increase by 3.12 per cent and 6.86 per cent, respectively.

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