Senior Citizens- Income tax and other benefits

Senior citizens or individuals who are above age 60 are provided with certain income tax benefits. From a higher income tax exemption limit to a higher deductible limit on health insurance premium to a higher TDS limit on income from deposits, there are several tax benefits to their advantage.

Let us have a look at a few income tax and other benefits that senior citizens can avail on their investments.

ITR Filing

Income-tax Act, 1961 provides no exemption to senior citizens or very senior citizens from filing a return of income. However, to provide relief to the senior citizens (whose age is 75 years or more) and to reduce the compliance burden on them, the Finance Act, 2021, one may make use of section 194P.

ITR Filing offline mode

From Assessment year 2019-20 onwards, a very senior citizen filing his return of income in Form ITR 1/ ITR 4 can file his return of income in paper mode, i.e., for him e filing of ITR 1/ ITR 4 is not mandatory. However, he may go for e-filing if he wishes.

Advance Tax Payment

As per section 208, every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form of “advance tax”. However, section 207 gives relief from payment of advance tax to a resident senior citizen.

As per section 207 a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession, is not liable to pay advance tax.

Deduction available on deposits

Section 80TTB of the Income Tax law gives provisions relating to tax benefits available on account of interest income from deposits with banks or post office or co-operative banks of an amount upto Rs. 50,000 earned by the senior citizen (i.e., an individual of the age of 60 years or above). Interest earned on saving deposits and fixed deposit, both shall be eligible for deduction under this provision.

TDS benefit

Section 194A of the Income Tax law gives corresponding provisions that no tax shall be deducted at source from payment of interest by bank or post-office or co-operative bank to a senior citizen up to Rs. 50,000. Therefore, the limit is to be computed for every bank individually.

Medical insurance premium

Senior citizens are more prone to hospitalisation and spend a lot on medicines and routine check-ups etc. There are special and exclusive health insurance plans for senior citizens and they may also consider buying health covers that allow coverage of OPD expenses.

While choosing senior citizens health insurance plans, they need to carefully select the deductible or the co-payment portion in the policy. Premium paid towards a health insurance policy (including critical illness or any other health plan) qualifies for tax benefits under Section 80D of the Income Tax Act. The premium paid towards health riders in a life insurance policy also qualifies for tax benefit under the section. The benefit is available to individuals on the premium paid for self, spouse, children and also includes parents.

The quantum of tax benefit, however, depends on the age of the individual who is medically insured. On the premium towards self, spouse, children and parents, the maximum deduction that can be availed is capped at Rs 50,000 a year, provided the individual’s age is above 60. Otherwise, the deduction is allowed up to Rs 25,000 if the age is below 60. If the individual is above age 60 and also pays a premium for his or her parents, the total deduction that can be availed is Rs 1 lakh.

Higher tax exemption limit

Those taxpayers who are between age 60 and 80 are treated as senior citizens while those above age 80 are considered as very senior citizens, for the income tax purpose.

For those whose birthday falls on April1, there was confusion for quite some time. The Central Board of Direct Taxes (CBDT) has recently clarified that while considering the higher exemption limit of tax liability for senior and very senior citizens, a person will be considered to have attained a particular age on March 31 if his or her birth date is a day later on April 1.

The exemption limit available to a resident senior citizen is Rs. 3,00,000. A very senior citizen is granted a higher exemption limit compared to others. The exemption limit available to a resident very senior citizen is Rs. 5,00,000. The exemption limit for non-senior citizens is Rs. 2,50,000. These benefits are not available to a non-resident even though he may be of higher age

Form 15H

As a senior citizen, if the total income in a financial year is within the exemption limit, Form 15H (Form 15G is for non-senior citizens) may be submitted by the depositor to the bank for not deducting TDS. Remember, if the deposits are for more than a year, one has to submit these forms every year ideally in April.

Senior Citizens’ Saving Scheme

Probably the first choice of most retirees, Senior Citizens’ Saving Scheme (SCSS) is a must-have in most retirees’ investment portfolio. As the name suggests this scheme is available only to senior citizens or early retirees. SCSS can be availed from a post office or a bank by anyone over the age of 60 years. SCSS has a five-year tenure, but it can be extended for three years after the scheme matures.

Currently, the interest rate in SCSS is 7.4 per cent per annum, payable quarterly and fully taxable. The upper investment limit is Rs 15 lakh and one may open more than one account. The capital invested and the interest payout, which is assured, has sovereign guarantee. What’s more, it also offers tax benefits under Section 80C and allows premature withdrawals.

Extra on bank FDs

Bank FDs offered to senior citizens who are 60 and above come with additional interest . Most banks offer 0.5 per cent extra on the rack rate of the duration chosen by them. The higher rate is also for any tax-saving deposit opened in the bank. At the time of initial deposit, proof of age is required to be submitted to the bank.

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