Budget 2025: After missing it in previous years, will FM Sitharaman give any major relief to senior citizens?

Taxes for senior citizens: As individuals reach their senior years, they often have specific financial needs that must be addressed as part of their overall financial planning. Tax planning becomes an essential component in ensuring their financial stability. Factors such as rising medical costs and inflation can lead to higher monthly expenses for elderly individuals. Depending solely on retirement savings or investments underscores the importance of securing their financial well-being.

Improving investment returns, taking advantage of tax breaks, and implementing effective administrative strategies can help to mitigate the various challenges that seniors encounter when managing their finances.

In recent years, there have been government initiatives to simplify the tax system, with changes introduced in Budget 2024 aimed at enhancing the appeal and efficiency of the new tax structure. 

Looking ahead to Budget 2025, senior citizens have been advocating for reforms that address their unique financial needs and challenges. As individuals age, they face a range of mental, health, and financial concerns that require careful management. While efforts have been made to create a more user-friendly tax system for the general population, senior citizens are also seeking specific adjustments to ensure its suitability for their circumstances.

Tax exemption limit

Expectations of senior citizens include a proposed revision to the basic tax exemption limit within the new tax regime. Presently, individuals aged 60 years and older are subject to the same tax brackets as younger taxpayers. Seniors are anticipating that Budget 2025 will raise the basic exemption limit to a minimum of Rs 10 lakh annually. This adjustment is aimed at reducing the tax burden on elderly taxpayers with limited income streams and various medical and financial obligations to manage. 

Standard deduction

Recognising the financial obstacles seniors encounter, particularly with the escalating inflation and healthcare expenses, policymakers may contemplate elevating the standard deduction to Rs 200,000 for senior citizens. This modification could help offset medical costs and deductions from fixed deposits provided under Chapter VIA, particularly within the old tax regime. This move could align with the government's objective of transitioning a larger portion of the population from the old tax regime to the new tax structure.

Simplification of tax filing process

The government currently exempts individuals aged 75 years and above from filing income-tax (I-T) returns if their income is solely from pension and interest earned from the same specified bank where the pension is credited. In order to extend this benefit to more senior citizens, the government could consider lowering the age limit to 70 years. Additionally, for those not covered by this provision (i.e., individuals with income from sources other than interest and pension), the government could introduce a simplified tax return form to streamline the filing process and make it easier for all taxpayers.

In a recent post on X, ex-Infosys CFO TV Mohandas Pai proposed a series of reforms that the government could enact. He recommended that the government consider taxing income above Rs 7.5 lakh for senior citizens aged 60 and above Rs 10 lakh for citizens over 70. Additionally, Pai suggested that individuals should not be required to file income tax returns until their income reaches Rs 5 lakh, unless they are seeking a refund.

TDS revision

According to Section 194A, banking institutions must withhold tax on interest income above Rs 50,000 for senior citizens. To avoid or lessen this deduction, senior citizens may submit Form 15H to the bank or request a lower tax deduction certificate. Failure to provide Form 15H will necessitate seniors to file a tax return in order to claim a refund on the deducted taxes, even if their total income falls below the basic exemption threshold. Raising the TDS threshold to match the basic exemption limit would streamline the process and potentially reduce the need for tax return filings in numerous instances.

Tax benefits on SCSS and other post-office savings schemes

In order to alleviate the financial burden experienced by senior citizens, it is suggested that specific measures be implemented to grant tax exemptions or deductions on the interest earned from the Senior Citizens Savings Scheme (SCSS) in 2024.

Senior citizens often build up substantial savings in post-office savings accounts. Therefore, the government could explore the possibility of enhancing tax benefits on the interest accrued from these accounts. Currently, tax exemption is applicable to 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). Given that these limits have remained unchanged for an extended period, senior citizens could potentially benefit from an increase in tax benefits.

Pension schemes

The National Pension Scheme (NPS) currently permits tax-free withdrawal of 60% of the corpus, with a minimum of 40% earmarked for annuity. To alleviate the tax obligations of retired senior citizens and encourage long-term financial planning, the government may want to explore the option of exempting or applying a reduced special tax rate on the annuity portion. Furthermore, tax exemption for pension from the Employee Pension Scheme could provide significant financial relief to senior citizens.