Leading up to the Union Budget speech on February 1, 2025, Finance Minister Nirmala Sitharaman is expected to announce potential tax reductions for individual taxpayers as part of the new tax regime. If these reductions are implemented, senior citizens who are currently receiving a salary or pension may also benefit. The elderly have been waiting for relief as their expenses, especially on healthcare and living costs, continue to increase.
For tax-filing purposes, individuals aged 60 years or above but less than 80 years are categorised as senior citizens. Under the new tax regime, senior citizens earning a pension income of up to Rs 7.75 lakh are not obligated to pay any taxes, thanks to the standard deduction of Rs 75,000 and a rebate of Rs 25,000 provided under section 87A.
In this new tax system, income between Rs 7-10 lakh is subject to a 10% tax rate, income between Rs 10-12 lakh is taxed at 15%, and income between Rs 12-15 lakh is taxed at 20%.
Tax exemptions expected
> Filing tax returns
Individuals 75 years of age or older who receive income solely from their pension and interest earned from the designated bank can be relieved from the obligation of filing income tax returns. In these instances, the designated bank is responsible for deducting tax at the source, eliminating the need for individuals in this category to file returns. Expanding this exemption to individuals 70 years of age and above would allow more senior citizens to benefit from this provision.
> Health insurance
As healthcare expenses continue to rise rapidly, elderly individuals face the challenge of expensive medical care along with limited tax benefits. Various experts have discussed their opinions on the Budget projections for senior citizens and the potential effects on their overall well-being. It is anticipated that the government will alleviate the tax burden by raising the limits under Section 80D of income tax for health insurance premiums to Rs 50,000 for all individuals and Rs 1 Lakh for senior citizens.
Tarun Chugh, MD & CEO of Bajaj Allianz Life, emphasized the need to provide incentives for pension products and ensure financial security for senior citizens in retirement. He suggested the government introduce a new tax deduction for term insurance and extend the tax deduction on life insurance premiums in the new tax regime. Chugh also proposed aligning tax deductions for life insurance annuity products with the National Pension Scheme (NPS) and addressing the issue of taxing the principal component of annuity products to better cater to retirement needs.
> Basic exemption
Under the current tax system, senior citizens are granted a basic exemption limit of Rs 3 lakh, while super senior citizens are entitled to a limit of Rs 5 lakh. The new tax system eliminates the need for individuals to pay income tax on total income up to Rs. 7 lakh.
If the basic exemption limit is raised to Rs 10 lakh in the new tax system, numerous senior citizens could benefit from this adjustment. Many seniors receive interest income ranging from Rs 5-6 lakh from their bank or post office deposits. Navigating the process of filing returns and managing paperwork can pose challenges for them. By increasing the basic exemption limit to Rs. 10 lakh, the government aims to improve the quality of life for this specific demographic.
“Key expectations include raising the basic exemption limit under the new tax regime from Rs 3 lakhs to Rs 5 lakhs, revising deductions and exemptions, and increase in the benefits under house rent allowance (HRA) for the metro cities,” said Kunal Savani, Partner, Cyril Amarchand Mangaldas.
> Senior Citizen Savings Scheme taxation
Introducing provisions for tax exemptions or deductions on the interest earned under the Senior Citizens Savings Scheme (SCSS), 2024 can help alleviate the financial burden on senior citizens. With an attractive interest rate of 8.2% for the July-September quarter, SCSS allows individuals to invest up to Rs 30 lakh. The interest earned on the SCSS investment is taxable based on the investor's income tax slab, and TDS is deducted if the interest received exceeds a specified threshold.
“Higher interest rates on senior savings schemes like the Senior Citizens' Savings Scheme could make them more appealing investment options,” said Ritika Nayyar, Partner, Singhania & Co.
> Adjustment to TDS Threshold
Under Section 194A, banks and financial institutions are required to deduct taxes on interest income exceeding Rs 50,000 for senior citizens. To reduce this deduction, seniors can submit Form 15H to the relevant financial institution or apply for a lower tax deduction certificate. If a senior citizen fails to do so, they must file a tax return to claim a refund of the deducted taxes, even if their total income is below the basic exemption limit.
Aligning the TDS threshold with the basic exemption limit would simplify the process and potentially decrease the need for filing returns in many instances.