9 Key Facts on Income Tax in India that You Should Know About

 

 Photo by Tara Winstead: 

A good percentage of seniors in India retire or stop working when they turn 60. They become officially a ‘senior’ as the retirement age at the majority of workplaces is 60 years.

Professionals like doctors, lawyers, chartered accountants etc with their own practice will of course stop working only when they wish to.

For the bulk of seniors income dwindles after retirement.

Those who had been in government service would receive an inflation-adjusted pension.

For the rest, income would be from their investments in Fixed Deposits, Post Office schemes, Pension Plans, Bonds, Mutual Funds and company shares.

Senior or not, Retired or not, Income Tax is payable on Income Earned, subject to certain limits.

The Government of India treats Senior Citizens in a separate, and slightly benign way!

More Tax concessions are given to Senior Citizens as against other age groups. Presumably taking cognizance of the decreased earnings and earning potential and increased health care costs

Expert Speak by a Chartered Accountant

The author of this blog has requested Chartered Accountant Mr STV Ramsunder to summarize the main features of the Income Tax Act of India vis –a –Vis Senior Citizens. Mr. Ramsunder is a well-known practicing Chartered Accountant based in Chennai,India.

SeniorScroll asked him important questions regarding Income Tax which seniors worry about:

1) Do Senior Citizens in India have to file Income Tax Returns and pay Income Tax?

Yes, in India all citizens who have an income beyond a specified limit have to file return and pay appropriate tax including senior citizens.

Also any person who had during the previous year—

 (i)  deposited an amount exceeding one crore rupees in any bank; or

(ii) incurred expenditure exceeding two lakh rupees for travel to a foreign country; or

(iii)  incurred expenditure of an amount exceeding one lakh rupees towards consumption of electricity

However under the following conditions, Senior Citizens are EXEMPTED from filing income tax:

-     Should be 75  years of age or older

-     Should have been resident in India during the previous year i.e. during the year for which tax is being filed

-     Should have Income from only 2 sources i.e. Pension and Interest on Deposits and the Interest Accrual should be in the same bank in which he/she is receiving Pension

-     The bank should be a ‘specified bank’ as notified by the Central Government. The bank will be responsible for the Tax Deduction at Source (TDS) of the senior citizen after considering deductions under Chapter Vl-A and rebate under 87A

 2)  What are the Tax rules for citizens over 60 years and those who are over 80 years of age?

The Income Tax Act of India divided Senior Citizens into two categories as below:

 a) Senior Citizen – An individual resident who is 60 years or above in age but less than 80 years at any time during the previous year is considered as a Senior Citizen for Income Tax purposes.

 We are now in the year 2023-24 and will be filing tax for the year 2022-23. For Income Tax purposes the year 2022-23 is the Financial Year and the year 2023-24 is the Assessment Year.

 Hence if during the year 2022-23 you had completed 60 years or in other words celebrated your 60^th Birthday, and are filing tax during Assessment Year 2023-24 then you will be eligible for income tax concessions given to Seniors.

 b) Super Senior Citizen - A Super Senior Citizen is an individual resident who is 80 years or above, at any time during the previous year.

 Hence if you are calculating your tax payable in the Financial Year 2022-23 and you celebrated your 80^th Birthday during 2022-23, then you will be considered a Super Senior Citizen for the Assessment Year 2023-24 and your tax will be calculated accordingly

 3)  What is the taxable income limit for senior citizens in India?

The Government of India introduced a new optional tax regime starting from April 1 2020 financial year 2020-21 for individuals and the HUF.

Senior Citizens -As per the Old Tax Regime the taxable limit is Rs 300,000 and as per the New Tax Regime the taxable limit for the Assessment Year 2023-24 for seniors is Rs 250,000

Super Senior Citizens - As per the Old Tax Regime the taxable limit for Super Seniors is Rs 500,000 and as per the New Tax Regime the taxable limit for the Assessment Year 2023-24 for Super Seniors is Rs 250,000    

4) Are the Income Slabs & Income Tax Rates different for non-seniors, seniors and super seniors?

In my response to the Question (3) above I have said that the taxable limit for seniors and super seniors for Assessment Year 2023-24 is Rs 250,000 for both seniors and super seniors as per the new tax regime. In the old tax regime the taxable limit for seniors was Rs 300,000 and for super seniors it was Rs 500,000.

In the old tax regime super seniors, besides the higher exemption limit were further entitled to reduced tax rates.

In the new tax regime the Income tax Exemption Limit, Income Slabs, and Income Tax Rates are the same for seniors and super seniors.

However the individual tax payer has the option to choose to pay tax either as per the new tax regime or as per the old tax regime. The choice can be changed every year depending whichever scheme is more beneficial.

Income Tax Rates for Senior Citizens & Super Senior Citizens

 5)  What are the other Income Tax concessions given to Senior Citizens?

 a)  No Advance Tax – Senior Citizens who do not have any income from a profession or business are exempt from paying Advance Tax.

b)Tax Deduction on Medical Expenses – Senior Citizens can claim a deduction of up to Rs. 100,000 for medical expenses incurred during the year for self or dependent family members. It can be claimed under Section 80DDB of the Income Tax Act. For non-seniors the amount that can be claimed is Rs 40,000

c) Tax Deduction for Health Insurance Premium – Senior Citizens can claim a higher deduction for Premium paid towards Health Insurance. According to Section 80D of the Income Tax Act, Senior Citizens may avail a deduction of up to ₹ 50,000 for payment of premium towards medical insurance policy. The limit is ₹ 25,000 in case of Non-Senior Citizens.

d)Tax Deduction on Interest Income – Senior Citizens are eligible for deductions on interest earned from certain specified investments under Section 80TTB of the Income Tax Act. The eligible amount is limited to a maximum of Rs 50,000 for the year. The eligible investments are

-  Savings Account – Interest earned from savings account with banks or post office

-   Fixed Deposit – Interest earned from fixed deposits with banks or post office

-   Recurring Deposit – Interest earned from recurring deposits with banks or post office

-  Deposits with a Co-operative Society-Interest earned from deposits with a co-operative society that’s engaged in banking

   It is to be noted that this deduction cannot be claimed if you opt to file returns under the new New Tax Regime.

 e) Paper filing of Income Tax Return-Super Senior Citizens (aged 80 years or more) have the option to submit their ITR using Form 1 or 4 in offline / paper mode. The e-Filing option also remains available to them.

 6)  What are the deductions that Senior Citizens are eligible for?

 Besides deductions mentioned in my answer to (5) above i.e. deductions towards Medical Expenses (80DDB), Medical Insurance Premium for self, spouse, dependent children (80D) and specified Interest Income (80TTB) there are other deductions that are applicable to seniors and non-seniors in case they opt for filing under the old scheme. These are:

Deductions under 80C, 80CCC, 80CCD (1) with a Combined Limit of Rs 150,000

80C –Life Insurance Premium, Provident Fund, Subscription to certain equity shares, Tuition Fees, National Savings Certificate, Housing Loan Principal, among other items

80CCD -Annuity plan of LIC or other insurer towards Pension Scheme

80CCD(1)-Deductions towards payments made to Pension Scheme of Central Government.

Deductions under 80CCD(1B) - Deductions towards payments made to Pension Scheme of Central Government excluding deduction claimed under 80CCD (1)

Deductions under 80CCD(2) - Deductions towards contribution made by an employer to the Pension Scheme of the Central Government.

Deductions under 80DD -Deductions made towards Maintenance or Treatment of a Disabled Dependent. The Deduction Limit is Rs 75,000 for a Disability and Rs 125,000 for Severe Disability.

Deductions under 80E - Deduction towards interest payments made on loan for higher education of Self or relative.

Deductions under 80EE - Deduction towards interest payments made on loan taken for acquisition of residential house property where the loan is sanctioned between 1st April 2016 to 31st March 2017. Deduction limit of ₹ 50,000 on the interest paid on loan taken

Deductions under 80EEA- Deduction towards interest payments made on loan taken for acquisition of residential house property for the first time where the loan is sanctioned between 1st April 2019 to 31st March 2022 and deduction should not have been claimed u/s 80EE. Deduction limit of ₹ 1,50,000 on the interest paid on loan taken

Deductions under 80EEB - Deduction towards interest payments made on loan for purchase of electric vehicle where the loan is sanctioned between 1st April 2019 to 31st March 2023. Deduction limit of ₹ 1,50,000 on the interest paid on loan taken, with limit being Rs 150,000

Deductions under 80G- Deduction towards Donations made to certain Funds, Charitable Institutions, etc.

Deductions under 80GG- Deduction towards rent paid for house & applicable only for whom HRA is not part of Salary. Form 10BA to be filed for claiming this deduction

Deductions under 80GGA - Deduction towards Donations made for Scientific Research or Rural Development

Deductions under 80GGC- Deduction towards Donations made to Political Party or Electoral Trust

Deductions under 80U- Deductions for an individual taxpayer with Disability upto 75000 and upto 125000 for person with severe disability (80% or more) irrespective of expense incurred

7)  There are many Income Tax Return (ITR) Forms for filing tax returns. Which Form should senior citizens use?

There are 7 types of Income Tax Return (ITR) Forms which can be used for filing income tax returns. However only 4 of these are applicable to Senior Citizens

ITR-1 (SAHAJ) is for individuals having income from salary, one house property, income from other sources as interest, pension, dividends and agricultural income upto Rs 5000

Conditions under which ITR-I (SAHAJ) cannot be Used : ITR-1 cannot be used by a person who is a Director in a company, who has held unlisted equity shares at any time during the previous year, who has any financial asset, account or income from a source outside India. SAHAJ can also not be used by a person in whose case tax has been deducted under Section 194N. This section relates to cash withdrawals exceeding Rs 20 Lakh in the previous year. A person in whose case payment or deduction of taxes has been deferred on ESOP can also not use SAHAJ

 Form ITR-2 is applicable for Individual and Hindu Undivided Family (HUF) not having Income under the head Profits and Gains of Business or Profession and not eligible to file returns using ITR-1

 Form ITR-3 is applicable for Individual and Hindu Undivided Family (HUF) Having Income under the head Profits and Gains of Business or Profession and not eligible to file tax using ITR Form 1, 2 or 4

 Form ITR-4 (SUGAM) -This return is applicable for an Individual, Hindu Undivided Family (HUF), or a Firm (other than Limited Liability Partnership) having Total Income up to ₹ 50 lakh and having Income from Business and Profession which is computed on a presumptive basis. Income can also be from any of the following sources –

-     Salary/Pension

-     Interest, Dividends,Family Pension

-     One House Property

-     Agricultural Income upto Rs 5000

-     Income from Business /  Profession computed on presumptive basis

Conditions under which ITR-4 (SUGAM) cannot be Used : ITR-4 cannot be used by a person who is a Director in a company, who has held unlisted equity shares at any time during the previous year, who has any financial asset, account or income from a source outside India. SUGAM can also not be used by a person in whose case tax has been deducted under Section 194N. This section relates to cash withdrawals exceeding Rs 20 Lakh in the previous year. A person in whose case payment or deduction of taxes has been deferred on ESOP can also not use SUGAM.

 8)    In addition to the Income Tax Return (ITR) forms, there are a few other forms and declarations that senior citizens in India should be aware of for income tax purposes. These are:

Form 15H -It is the Form to be submitted by an individual who is 60 years of age or more to the bank for not deducting TDS (Tax Deduction at Source) on Interest Income. The Form will have details of the of the Estimated Income of the individual for the financial year under consideration.

Form 12BB – This is applicable only to employed senior citizens. It is the Form to be submitted by an employee to his/her employer giving details of HRA, LTC, Interest on borrowings, Tax Saving Claims/Deductions for the purpose of calculating Tax to be Deducted at Source

Form 16 – Certificate of Tax Deducted at Source on Salary to be provided by an Employee to his/her Employer. Details to be included are Salary paid, Deductions / Exemptions and Tax Deducted at Source for the purpose of computing tax payable / refundable.

Form 16A – Certificate of Tax Deducted at Source on Income Other than Salary This is to be provided by Deductor (Bank, Finance Company etc)  to Deductee (individual tax payer). Form 16A is a Tax Deducted at Source (TDS) Certificate issued quarterly that captures the amount of TDS, Nature of Payments and the TDS Payments deposited with the Income Tax Department.

Form 26AS- It is provided by the Income Tax Portal. It gives details of the Tax Deducted/Collected at Source for individual tax payers. It is available on the e-filing portal. You can follow this path to view your Form 26AS i.e.  Login > e-File> Income Tax return > View form 26AS.

AIS – Annual Information Statement . It is provided by the Income Tax Department and contains more detailed information as Tax paid, Refund, GST information, TDS, etc

Form 10E –Form for providing particulars of income for claiming relief when salary is paid in arrears or advance. It is to be provided by the employee to the Income Tax department giving details of Arrears/Advance Salary, Gratuity, Compensation on Termination, Commutation of Pension

Form 67 – It is a Statement of Income from a country outside India and Foreign Tax Credit. It is to be submitted by the tax payer to the Income Tax Department

9)  As a Chartered Accountant can you advise senior citizens how to choose between the new income tax regime and the old tax regime for filing returns?

 Ø  Determine Total Income for the year from Pension, Annuity Amount, Interest income from deposit, bonds, Rental income if any, dividends if any, Sale of holding in Mutual Funds/Company shares.

Ø  Apply eligible Deductions & Exemptions for both regimes under various sections of the IT Act as given in my answer to Question (6) above.

Ø  Senior Citizens are eligible for certain age-related tax benefits in the old regime as higher exemption limit for Interest Income, for Medical Insurance and Medical Treatment.

Ø  These deduction are subtracted from the total income to arrive at the taxable income.

Ø  Evaluate the final taxable amount under both regimes, and calculate tax as per applicable income tax rates

Ø   If you have significant deductions that can reduce your tax liability in the old regime, it may be more beneficial to opt for it

IMPORTANT: If you are unable to decide upon which tax regime is better for you, please consult a Chartered Accountant /Tax consultant or Financial Advisor. They can analyse your specific situation and suggest which the better regime is after considering your needs and goals.