How senior citizens can save tax this ITR filing season

In the recent Budget, the Finance Minister announced a major relief for seniors aged 75 and above, from filing their yearly tax returns, upon fulfilling certain conditions. The CBDT has notified the declaration form to be filed by them in this regard, last week. Apart from easing their hardship in terms of the filing requirements, the tax rules still have many other tax concessions for the elderly. While the tax filing deadlines have been extended it pays to keep your ground work ready in advance. Here is a lowdown of relief available for senior citizens.

No returns from next year

Seniors aged 75 or above, who comply with certain conditions, are exempt from filing their returns from FY22 onwards, per the recent amendment in tax laws. For this the senior should only earn pension and interest income from the bank in which such pension is deposited. The taxes required to be paid by them will be calculated and deducted by the bank, after considering the deductions allowable under chapter VI A and rebate under section 87A. Such seniors are required to submit a signed declaration every year in Form 12BBA to the bank, that they do not have any other income, apart from the pension and interest on bank accounts maintained with the bank in which the pension is deposited. The form seeks basic information such as name, address, PAN and date of birth of the specified senior citizen. That apart, name of the bank where pension is deposited, and of the employer from whom the pension is drawn, along with the pension payment order number are required to be furnished in the form.

Do note that this exemption is not available to those pensioners who have accounts in more than one bank, or those who are aged below 75 years. Also, if you have other sources of income, you are not exempt from filing returns. These conditions makes the applicability quite narrow. However, there are other concessions that are universally applicable for seniors such as exemption from advance tax, higher deductions, liberal TDS limits as well as concessional tax slabs.

Advance tax exemption

Individual taxpayers whose tax liability in any financial year is ₹10,000 or more, are required to pay the tax in advance — that is in four installments spread over the year. If not, interest under section 234B and 234C of the Income Tax Act, at the rate of one per cent per month (under each section), for every month of delay, is required to be paid, along with the taxes.

However, seniors aged 60 or above, who do not earn any income under the head ‘profits and gains from business or profession’ are exempt from the requirement of paying their taxes in advance. Do note that only resident senior citizens are eligible for such exclusion.

The IT Act allows for deductions on account of health insurance premium paid for self and family (spouse and dependent children), up to a maximum of ₹25,000, under section 80D. For seniors (resident and aged 60 years or above) the maximum deduction allowed every year, on payment of health insurance premium for self and family, is higher –– up to ₹50,000.

That apart, under section 80DDB individual taxpayers can claim a deduction of up to ₹40,000, on medical expenditures for certain specified diseases, if incurred for self or for dependents. The specified diseases laid out in rule 11DD, include Malignant Cancers, AIDS, Chronic Renal Failure and Parkinsons or Dementia (with disability level certified as 40 per cent or above), for which prescription as prescribed in the rules has been obtained.

Considering the increasing chances of ailments for the elderly, the maximum allowable deduction under this section is ₹1 lakh for seniors (resident and aged 60 or above).

Besides, seniors are also allowed a deduction of up to ₹50,000, on interest earned by them on deposits with banks (savings, fixed, recurring), cooperative societies, or Post Office under section 80TTB. Such deduction is only allowed on interest earned on savings accounts for other individual taxpayers and that too, up to a maximum of ₹10,000 only under section 80TTA.

If the interest income earned from banks, cooperative societies or post office, exceeds ₹40,000 in any year, tax is deducted at source at the rate of 10 per cent. However, for seniors, the TDS limit is a tad higher at ₹50,000. Seniors whose total income in any year falls below the taxable limit can furnish a declaration in Form 15H to banks, to avoid unnecessary deduction of tax at source.

Seniors aged 75 or above, who are eligible to do away with the filing of their returns from next year, will not be subject to these TDS provisions. That is, the bank will deduct TDS only at the rates applicable on their income and not at 10 per cent.

Different tax slabs

The tax computation for individual assesses is according to a slab structure, wherein taxable income up to ₹2.5 lakh is exempt from taxes. Further, incremental income up to ₹5 lakh, is taxed at the rate of 5 per cent; income from ₹5 lakh to ₹10 lakh at 20 per cent, and at 30 per cent for the income above ₹10 lakh.

Seniors aged 60 years or above are not required to pay taxes on income up to ₹3 lakh, while the remaining slabs are the same. For seniors aged 80 years or more, income is exempt up to ₹5 lakh and the remaining income is either taxed under the slabs of 20 or 30 per cent.

However, there are two things to keep in mind here. Education cess and surcharge (including enhanced surcharge) on the computed taxes apply to seniors and super seniors as well.

Secondly, the new tax regime proposed in the previous budget (under section 115BAC), has no such bifurcation in slab rates based on age of the taxpayer. Seniors opting for this regime may also have to forego the additional deductions mentioned above.

That said, rebate available for all taxpayers under section 87A, on income tax payable on income up to ₹5 lakh, for a maximum of ₹12,500 continues to apply to even those who have opted for the lower tax regime.