Union Budget 2025: Can FM Nirmala Sitharaman consider these incentives for senior citizens to offer relief

Budget 2025 expectations: As the Union Budget 2025 approaches, all eyes are on what Finance Minister Nirmala Sitharaman will include in her budget proposal. Senior citizens are particularly hopeful for tax concessions to be announced this time around. The elderly have been waiting for relief as their expenses, especially on healthcare and living costs, continue to increase. 

With only their savings or investments to rely on, ensuring their financial security is crucial. Measures such as improved return on investments, tax benefits, or simplified administrative processes could help alleviate the burden on senior citizens.

Here are some ways senior citizens can get relief:

Basic exemption limit

In the current tax regime, senior citizens have a basic exemption limit of Rs. 3,00,000/-, while super senior citizens enjoy a limit of Rs. 5,00,000/-. Under the new tax regime, individuals are not required 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 regime, many senior citizens could benefit from this change. A significant number of seniors earn interest income ranging from Rs. 5-6 lakh from their bank or post office deposits. The process of filing returns and managing paperwork can be challenging for them. By increasing the basic exemption limit to Rs. 10 lakh, the government aims to enhance the quality of life for this particular segment of the population.

Simplification of ITR filing process

For individuals aged 75 years and above whose income consists solely of pension and interest income from the same specified bank, there is relaxation in the requirement to file income-tax (I-T) returns. In these cases, the specified bank will deduct the applicable tax, eliminating the need for filing a return. Consideration is being given to lowering the age threshold for this provision to 70 years, which would extend this benefit to more senior citizens.

More incentives under New Tax Regime

In light of the government's continued push to promote the adoption of the default New Tax Regime, FM Sitharaman may propose an increase in the basic exemption limit for senior citizens under this new system. This change is expected to narrow the gap and incentivize more individuals to switch to the new regime, particularly considering the lack of certain deductions available in the old regime.

Tax deductions on medical expenses

In response to the escalating medical expenses, it is anticipated that the upcoming Union Budget will introduce expanded tax benefits for senior citizens regarding their medical costs. Currently, under Section 80D, individuals are eligible for a deduction of Rs 50,000 for expenditures related to health insurance premiums, preventive check-ups, or medical expenses. The forthcoming Budget may introduce targeted provisions that enable deductions for out-of-pocket medical costs, thereby offering further financial assistance to senior citizens.

Change in TDS threshold

According to Section 194A, banks and financial institutions must withhold taxes on interest income exceeding Rs 50,000 for senior citizens. However, seniors can mitigate or lessen this deduction by furnishing Form 15H to the relevant financial institution or by applying for a lower tax deduction certificate. In the event that a senior citizen fails to submit Form 15H, they will need to file a tax return to request a refund of the deducted taxes, regardless of whether their total income falls below the basic exemption limit.

Harmonising the TDS threshold with the basic exemption limit would streamline the process and potentially reduce the necessity for filing returns in numerous instances.

Tax exemption on SCSS

Introducing tax exemptions on Senior Citizens Savings Scheme (SCSS) interest could be a helpful step in alleviating the financial burden on senior citizens. The government may consider implementing specific provisions that offer tax exemption or deductions on the interest earned from the SCSS in 2024.

More tax benefits on small savings schemes

Furthermore, enhancing tax benefits for post-office savings accounts could also benefit senior citizens who typically have substantial savings in these accounts. Currently, tax exemption is available on post office savings interest up to Rs 3,500 for individual accounts and up to Rs 7,000 for joint accounts under Section 10(15)(i). With these limits remaining unchanged for an extended period, senior citizens could potentially benefit from an increase in tax benefits for their post-office savings accounts.

Taxes on NPS and EPS

To alleviate the tax burden on senior citizens during retirement and encourage long-term financial planning, the government may want to consider reducing or exempting taxes on the annuity portion of National Pension Scheme (NPS) withdrawals. Currently, NPS allows for tax-free withdrawal of up to 60% of the corpus, with at least 40% mandated for annuity purchase. Furthermore, introducing tax exemptions for pension received from the Employee Pension Scheme could provide significant financial relief to elderly individuals.