As individual taxpayers transition into their golden years, it becomes increasingly important to manage their finances wisely, including optimizing tax liabilities. In India, senior citizens, defined as individuals aged 60 years or above, are entitled to a range of tax benefits that can significantly reduce their tax burden and enhance financial well-being. Understanding and leveraging these benefits can play a crucial role in securing a comfortable retirement and ensuring financial stability.

This article enumerates various benefits and relaxations which can be availed by the senior citizens under the Income Tax Act, 1961 (hereinafter referred to as ‘IT Act’).

Who is a Senior Citizen in India?

For the purpose of determining tax liability under the IT Act, an individual aged 60 years or above but less than 80 years at any time during the relevant financial year shall be referred to as “Senior Citizen” whereas Super Senior Citizen are individuals aged 80 years or above at any time during the financial year for income tax purposes.

Further, the Central Board of Direct Taxes (‘CBDT’) also issued a clarification via Circular No. 28/2016 on supreme court’s ruling pertaining to ascertainment of age a resident individual taxpayer while his/her computing tax liability.

The said clarification provided that “a person born on April 1 would be considered to have attained a particular age on March 31, the day preceding the anniversary of his birthday. In particular, the question of attainment of age of eligibility of being considered a senior/very senior citizen would therefore be decided on the basis of above criteria”.

Tax benefits available for senior citizens:

* Enhanced Basic Exemption Limit:

Every taxpayer is provided with standard tax waivers i.e. basic tax exemption from their taxable income. The Finance Act of the respective year provides for the income tax slab rates applicable for the relevant financial year.

For the financial year 2023-24, the senior citizens opting for the old tax regime enjoy an enhanced basic exemption limit of Rs 3 lakh and that for super senior citizens, it is Rs 5 lakh vis-à-vis the basic exemption limit of Rs 2.5 lakh applicable for other individual taxpayers. This higher basic exemption limit provides senior citizens with some relief from income tax, as they are not required to pay tax on income below this threshold. However, it is pertinent to note that taxpayer opting for the concessional tax regime would enjoy a basic exemption limit of Rs 3 lakhs irrespective of their age.

* Relief from Advance Tax Payment

In accordance with the section 208 of the IT Act, every person whose estimated tax liability for the year is Rs. 10,000 or more would be required to pay his/her tax in advance in the form of “advance tax”.

However, a resident senior citizen is exempt from payment of such advance tax even if their tax liability increases the said threshold, provided they do not derive any income from business and profession.

* Higher Threshold for Deduction w.r.t. Interest Income

Under Section 80TTB, senior citizens can claim a deduction of up to ₹50,000 on interest income as compared to deduction of upto Rs. 10,000 available for other taxpayers. Further, senior citizens can claim such deduction w.r.t. interest earned from savings accounts, fixed deposits, and recurring deposits with banks, co-operative banks, and post offices. Thus, the scope for claiming such deduction by senior citizens is wider as compared to other taxpayers who can claim such deduction only w.r.t. savings interest. The said deduction enables the senior citizens in maximizing returns on savings and investments.

Relief from Return Filing

1. Exemption from Return Filing

Section 194P of the IT Act exempts senior citizens from furnishing of income-tax returns provided they satisfy the following conditions:

• Senior citizen should be a resident taxpayer aged 75 years or above in age in the relevant financial year

• Senior Citizen should only derive pension income and interest income which is accrued/ earned in the same specified bank in which the pension is received.

• The senior citizen has submitted a declaration to the specified bank and the specified bank has withheld tax

Such banks will be responsible for the TDS deduction of senior citizens after considering the deductions under Chapter VI-A and rebate under 87A. Once the specified bank, as mentioned above, deducts tax for senior citizens above 75 years of age, there will be no requirement to furnish income tax returns by senior citizens.

2. Offline Return Filing

A super senior citizen is allowed to file their return of income in paper mode in their jurisdictional tax office, provided the return is being filed in ITR 1 (Sahaj) and ITR 4 (Sugam).

Since ITR-1 as well as ITR-4 is only applicable to Resident and Ordinary Resident, senior citizens with residential status as “Non-resident” or “Resident but not Ordinary Resident” shall not be eligible to claim the aforementioned benefit.

Relief from Deduction of Tax Deducted at Source (TDS)

Section 197A(1C) of the IT Act provides that no deduction of tax under certain specified sections shall be made in case of resident senior citizens during a financial year provided the senior citizen furnishes a declaration in Form 15H that the tax on their estimated total income during the relevant financial year is nil.

Such declaration should ideally be submitted at the beginning of the financial year in order to avoid the blockage of funds.

Tax Benefit under the Senior Citizen Savings Scheme

Senior citizen saving scheme is a government backed retirement scheme which ensures post- retirement regular income along with income tax benefits. However, such benefits are subject to below-mentioned conditions:

The benefit of this scheme can be availed by senior citizen by depositing a lumpsum amount of minimum Rs. 1,000 and maximum of Rs. 30,00,000.

The tenure of such account shall be 5 years, which can be extended to a further period of 3 years from the date of maturity.

Deposits made in such Senior Citizen Savings Scheme is eligible for deduction u/s 80C of the IT Act upto a threshold limit of Rs. 1.5 lakh.

Tax Benefits for Health Concerns

Enhanced deduction limit for Mediclaim Premium and Medical Expenditure

Section 80D of the IT Act provides a deduction for Mediclaim premium paid in respect of medical insurance or contribution to Central Government Health Scheme for self, spouse or dependent children.

Senior citizens can avail a higher deduction of upto Rs. 50,000 vis-à-vis a deduction of Rs. 25,000 as applicable to other taxpayers. Also, deduction of Rs 5,000 for any payments made towards preventive health check-ups can be availed within such threshold limit of Rs Rs. 50,000.

Further, senior citizens above the age of 60 years not covered by Health Insurance to be allowed a deduction of upto Rs. 50,000 incurred towards medical expenditure.

Enhanced deduction limit for Medical Expenditure for Specified Diseases

Section 80DDB of the IT Act allows deduction for expenses incurred with respect to medical treatment of such certain specified diseases or ailments including Neurological diseases, Malignant Cancers, etc.

The quantum of deduction under this section shall be Rs. 1,00,000 or actual expenses incurred whichever is lower in case of senior citizen. As such, senior citizens enjoy a higher threshold limit of deduction of Rs. 1 lakh as compared to Rs. 40,000 applicable in case of other taxpayers.

It is pertinent to note that any insurance claim received by the taxpayer would be reduced for the purpose of computing deduction under this section.

Bottomline

By capitalizing on the aforementioned tax benefits, senior citizens can optimize their tax planning strategies and maximize savings, thereby ensuring a financially secure and fulfilling retirement journey. With proactive tax planning and prudent financial management, senior citizens can navigate the complexities of taxation in India with confidence and ease.