Union Budget 2025: What income tax relief did FM Sitharaman offer senior citizens last time; check details

Budget expectations: Finance Minister Nirmala Sitharaman is set to unveil her eighth consecutive Union Budget on February 1, 2025. The announcement is eagerly awaited by various sectors, with a particular focus on taxpayers and senior citizens who are hopeful for significant tax relief. Senior citizens, in particular, encounter distinct financial challenges as many rely on fixed-income investments or rental income to sustain themselves financially.

The escalating inflation and rising cost of living have further exacerbated their struggles, impacting their quality of life. Given their restricted income, additional financial support and guidance are essential for this group. The forthcoming budget is anticipated to tackle these issues and offer much-needed assistance to senior citizens.

In the 2024 Budget, FM Sitharaman implemented various modifications to the capital gains framework, tax deducted at source (TDS), and related elements. Yet, if you are a senior citizen, the impact of these changes may not be substantial. Understanding the implications of Budget 2024 and its effects on tax planning is crucial for senior citizens.

Here are the tax-related changes introduced for senior citizens in Budget 2024: 

1. Standard deduction

The standard deduction limit for family pensioners has been raised to Rs 25,000 from Rs 15,000. This increased deduction is now applicable to individual taxpayers who receive family pensions. The finance minister has recommended increasing the standard deduction for salaried employees from Rs 50,000 to Rs 75,000. Furthermore, the deduction on family pension for pensioners is proposed to be raised from Rs 15,000 to Rs 25,000 under the new tax regime. This adjustment will bring relief to approximately four crore salaried individuals and pensioners.

2. Tax slabs for senior citizens

Senior citizens are eligible for higher income exemption limits under both the old and new tax regimes. In contrast, regular individuals have a lower tax threshold of Rs 2.5 lakh under the old tax regime.

New Tax Regime Slabs

Tax Slab for FY 2024-25  Tax Rate

Up to Rs 3 lakh           NIL

Rs 3h lakh - Rs 7 lakh    5%

Rs 7 lakh - Rs 10 lakh    10%

Rs10 lakh - Rs 12 lakh    15%

Rs 12 lakh - Rs 15 lakh   20%

Above Rs 15 lakh          30%

 

Old Tax Regime Slabs for senior citizens (60 years & HUF)

Income Slabs                     Tax rate

Up to Rs 2,50,000               NIL

Rs 2,50,001 - Rs 5,00,000  5%   

Rs 5,00,001 to Rs 10,00,000  20%

Rs 10,00,001 and above    30%

3. ITR filing relief for senior citizens

Section 194P outlines the criteria for senior citizens to be exempt from filing income tax returns if they are 75 years and older.

The conditions for exemption from filing income tax returns are:

Age Requirement: The individual must be 75 years or older.

Residency Status: The individual must be a 'Resident' for the previous financial year.

Income Sources: The individual's income should be limited to pension and interest income only. Additionally, the interest income must be accrued or earned from the same specified bank where the pension is received.

Declaration Submission: The individual must submit a declaration to the specified bank regarding their income and tax details.

Specified Bank: The bank where the pension is received must be a 'specified bank,' as notified by the central government. These banks are responsible for deducting TDS based on the individual's income and any applicable deductions under Chapter VI-A and rebate under Section 87A. 

No Additional Filing Needed: Upon the designated bank deducting the necessary tax, the senior citizen will not be required to file an income tax return.

Taxation of pension funds

Upon reaching retirement, individuals have the option to receive a portion of their pension in advance, known as a commuted pension. Conversely, an uncommuted pension is a regular monthly pension payment. Uncommuted pension (Monthly Pension) is considered fully taxable as Salary for Senior Citizens in both Government and Private Sector Employees. 

However, commuted pension for Government Employees is completely exempt from taxation.

In the case of senior citizens who are private sector employees, the tax treatment of commuted pension is as follows:

• If the individual also receives Gratuity along with commuted pension, one third of the commuted pension is exempt from tax, with the remaining two-thirds being taxable as Salary.
• If Gratuity is not received along with commuted pension, half of the commuted pension is exempt from tax, while the remaining half is taxable as Salary.
   

Tax liability

The current income tax liability for an average senior citizen in 2024 can be calculated as follows:

Standard Deduction: Rs 50,000
Section 80C Deduction: Rs 1,50,000
Section 80D Deduction: Rs 25,000
Total Deductions: Rs 2,25,000
Taxable Income: Rs 7,75,000

Based on the taxable income, the tax liability is as follows:
Up to Rs 3 lakh: Nil (senior citizen exemption)
Rs 3 lakh – Rs 5 lakh: 5% of Rs 2 lakh = Rs 10,000
Rs 5 lakh – Rs 7.75 lakh: 20% of Rs 2.75 lakh = Rs 55,000

Therefore, the total income tax payable by the average senior citizen for the year 2024 would be Rs 65,000.