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Income Tax Calculation for Senior Citizens & Tax Slabs

Income Tax Calculation for Senior Citizens & Tax Slabs

Income Tax Calculation for Senior Citizens
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In comparison to non-senior citizens, senior and super-senior citizens are given a higher exemption limit. The income amounts up to which a person is not required to pay tax are known as the exemption limit. So, how is the income tax calculation for senior citizens done?

The tax slab for senior citizens in India is as follows: For those who are 60 years old or above but less than 80 years old, the tax slab starts from Rs 3 lakhs. For those who are 80 years old or above, the tax slab starts at Rs. 5 lakhs.

Tax Slab Rates under Old Tax Regime

For Senior Citizens aged 60 years or above but below 80 years of age:

Income Slabs Tax Rate
Income of up to Rs 3 lakhs Not applicable
Between Rs 3 lakhs and Rs 5 lakhs 5%*
Between Rs 5 lakhs and Rs 10 lakhs 20%
Income greater than Rs 10 lakhs 30%

For Super Senior Citizens aged 80 years and above:

Income Slabs Tax Rate
Income of up to Rs 5 lakhs Not applicable
Between Rs 5 lakhs and Rs 10 lakhs 20%
Income greater than Rs 10 lakhs 30%

Tax Slab Rates under New Tax Regime

Income Slab Tax Rate
Up to Rs 2.5 lakh Nil
Rs 2.5 lakh – Rs 5 lakh 5%*
Rs 5 lakh – Rs 7.5 lakh 10%
Rs 7.5 lakh – Rs 10 lakh 15%
Rs 10 lakh – Rs 12.5 lakh 20%
Rs 12.5 lakh – Rs 15 lakh 25%
Above Rs 15 lakh 30%

* A rebate under section 87A is available

Rebate Under Section 87A

Income Tax rebates are a reduction in the amount of tax payable by the taxpayer. It is an exemption from tax liability. Rebates are given to the taxpayer to encourage them to save the money for future purposes. There are many types of rebates which are given to taxpayers according to the Income Tax Slabs.

Section 87A rebate is available as a deduction from tax and is limited to Rs 12,500. In other words, if the tax liability exceeds Rs 12,500, a rebate of only Rs 12,500 is applicable. The liability over and above Rs 12,500 is not waived.

Income Tax Calculation for Senior Citizens

In general, a senior citizen's income tax calculation would involve considering their taxable income, any deductions or allowances that may apply, and their tax rate. Some of the various incomes a senior citizen can invest for:

  • Dividend or interest income from investments in stocks or bonds
  • Capital gains made by selling investments in financial instruments or property
  • Rental income from property that is leased out
  • Pension income from a retirement account or annuity
  • Agricultural income from farming or livestock
  • Business income from owning and operating a business
  • Interest income from deposits in a bank or financial institution

Tax-Free Incomes for Senior Citizens

There are several deductions and exemptions available for senior citizens which can help reduce their tax liability. These include deductions for medical expenses and investments in specified schemes. There are several instruments such as PPF, NSC, and ELSS which offer tax benefits and can be used to save taxes for senior citizens. There are numerous ways in which senior citizens can earn tax-free incomes in India. Some of the most common ways include:

1. Investing in Senior Citizen Saving Scheme (SCSS)

The SCSS is a government of India scheme that offers deduction under section 80C for the Investments made in SCSS. Interest income from the scheme will be taxable under the Income Tax Act. But you can follow the strategy below to minimise tax impact:

   - Invest up to Rs 3 lakhs a year in SCSS
   - In five years, you will reach the threshold of Rs 15 lakhs in SCSS and start reinvesting the maturing SCSS accounts
   - You will have an income of Rs 1.11 lakhs from SCSS and avail of a rebate of Rs 1.5 lakhs a year
   - This way you can have another Rs 5.4 lakhs of taxable income from other sources

2. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

The PMVVY is a pension scheme for senior citizens that offers guaranteed returns. Interest earned from PMVVY is exempt from tax.

3. Investing in Annuities

Annuities are contracts that provide a guaranteed income for a certain period. Income is taxable, unless:

   - You have invested in life insurance annuities
   - Your annuity has a life cover
   - Your annual investment in annuities never exceeded 10% of the life cover in the annuity

4. Receiving Interest from Bank Deposits

Interest earned on bank deposits is exempt from tax up to Rs 50,000 per annum for senior citizens.

5. Public Provident Fund (PPF)

The Public Provident Fund (PPF) account is one of the most popular small savings schemes in India. It offers an attractive rate of interest and is completely exempt from taxes. The account can be opened with any bank or post office.

   - You can build a corpus in PPF up to the age of 60 or 65
   - Partial withdrawals are allowed after the sixth financial year of investment
   - Partial withdrawals from PPF are exempt from tax. So, any income drawn from the account will be tax-free
   - The account can be extended for 5 years multiple times after maturity

6. Unit Linked Insurance Plans (ULIPs)

Unit linked insurance plan (ULIP) is an insurance cum investment plan where the policyholder gets life insurance cover along with an opportunity to invest the money in various funds. ULIPs like Invest 4G from Canara HSBC Life Insurance offer the following benefits:

   - The premium paid towards ULIPs can be invested in debt funds, equity funds, or a combination of both
   - Invested amount is eligible for deduction under Section 80C and withdrawals before and on maturity are tax-free
   - Partial withdrawals are available after 5 years of investment
   - You can stay invested in the plan up to the age of 99. So, you can build your retirement corpus and then draw a tax-free pension from the ULIP.
   - Life cover in the plan will help you leave a legacy for your family after your natural demise
   - The plan also has bonus additions for long-term investors

Investing in long-term tax-free investments can be a great way to save for retirement or other long-term goals. These types of investments are typically very stable and offer a fixed rate of return, making them a great option for those who are risk averse. Additionally, the interest earned on these investments is typically tax-free, which can further increase your overall return.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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