Tax Laws for Senior Citizens

Taxation for Senior citizens

Senior citizens have always had a special place in Indian society. This aspect has been acknowledged and respected even by the Indian tax laws, which attempt to cushion our elders by easing the tax paying and compliance process for them through certain benefits and deductions. Under the Income-tax Act, 1961, a ‘Senior Citizen’ has been defined as an individual who attains the age of 60 years at any time during a financial year, while an individual who is 80 years or more is categorised as ‘Very Senior Citizen’. These categories of individuals enjoy some additional benefits under the Act.

Senior citizens currently enjoy higher exemption limits as compared to other individual taxpayers . The Finance Bill, 2014 proposes an increase in the basic exemption limit for senior citizens from the existing Rs 2.5 lakh to Rs 3 lakh, while the existing limit of Rs 5 lakh continues for very senior citizens. The proposed amendment is likely to help them save more tax.

Senior citizens typically depend upon passive sources of income, such as pension, dividend, interest, rentals etc. Often, the most valuable asset they own is the house in which they live. To further augment their income, the government has introduced the concept of a Reverse Mortgage Scheme. Under this scheme, when a senior citizen mortgages his house to a bank, capital gains would not arise on account of this arrangement and any payments received by him would be exempt from tax.

An individual is required to settle his taxes by way of advance tax if his estimated net tax liability after TDS exceeds Rs 10,000 per annum. With a view to lessen the hardship of estimating taxes and remitting the same before due dates in September, December and March, India tax laws provide that the senior citizens who do not have income from business or profession are exempted from complying with advance tax payments. The tax liability can be remitted by way of self-assessment tax.

The taxable income of senior citizens, once they have retired from work, often falls below the maximum exemption limit. The Act provides that a senior citizen can furnish a declaration in Form 15H if his total income is less than the taxable limit, and request for non-deduction of tax at source. In the absence of this provision for Form 15H, the senior citizen would have had to file tax return, claiming a tax refund. This benefit should hence provide considerable relief to the senior citizens.
Medical expenses typically escalate as people approach their golden years. To provide some relief and support to the senior citizens during these years, the tax authorities allow a deduction of Rs 15,000 for payment towards health insurance premium for self and similar amount for health/medical insurance for parents. This limit is enhanced to Rs 20,000 if the premium is paid for senior citizens.

Also, expenses incurred towards medical treatment for prescribed diseases for self or dependents can be deducted up to Rs 60,000 from the taxable income in the case of senior citizens as against Rs 40,000 for non-senior citizens. This has to be supported by a certificate from a prescribed medical practitioner.

The Finance Bill 2014 has retained most of the existing provisions relating to senior citizens and no significant amendments have been introduced, except for the enhanced tax exemption limit.

However, with a view to protect the financial interests of the senior citizens, it is proposed in this new budget that a committee will be set up to study how the unclaimed balances with Public Provident Fund, Post office savings account and other savings schemes can be utilised. It is also proposed to notify a minimum pension of Rs 1,000 per month to all subscriber members of Employee Pension Scheme.

As our country’s senior citizens look forward to a comfortable retirement, it is hoped that the government will continue to support such relief measures.

Source: Business Today
The authors are Priyambada Sen, director and Kavitha Jagadeesan, assistant manager, Deloitte Haskins & Sells LLP.

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