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Senior citizen tax relief: Exemption limit may rise to Rs 5 lakh, ZERO tax on income up to Rs 10 lakh under Old Tax Regime!

Date: January 12, 2025
# News

Budget 2025: The government may raise the basic income tax exemption limit for senior citizens to Rs 5 lakh, potentially resulting in zero tax liability for income up to Rs 10 lakh under the Old Tax Regime, according to tax reports.

Senior citizen tax benefits: Each year during the Budget, taxpayers eagerly await the government’s announcements on tax relief, particularly for senior citizens. With limited sources of income, senior citizens often rely on pensions, which act as a crucial financial safety net for them.

Experts believe that Finance Minister Nirmala Sitharaman may finally adjust the tax slabs under the old tax regime as well in the upcoming Budget, expected to be presented on February 1. The government has not made any significant changes to the Old Tax Regime ever since the New Tax Regime was announced in the Union Budget 2020-21. In the Budget 2023-24, the government, however, increased the basic income tax exemption limit to Rs 3 lakh for senior citizens (60 years and above) and Rs 5 lakh for super senior citizens (80 years and above).

According to tax expert Apoorva Goyal, Partner, Sahni & Co., “The government is expected to maintain its focus on the new tax regime in this Budget, continuing its aim of bringing more taxpayers under its ambit. However, for a change, the old tax regime might see some tweaks, particularly in its initial slab, to provide relief for senior citizens. Raising the basic tax exemption limit to Rs 5 lakh for senior citizens and Rs 7 lakh for super senior citizens is possible.”

This move could offer significant relief to senior taxpayers, who can benefit from the various deductions available under the old tax regime, she added.

Currently, in the old tax regime, the basic exemption limit for senior citizens is Rs 3 lakh, and for super senior citizens, it is Rs 5 lakh.

Here are the tax slabs for senior citizens (aged 60 years and above) under the Old Tax Regime:

For senior citizens (aged 60 years to 80 years):

Up to Rs 3,00,000: No Tax

Rs 3,00,001 to Rs 5,00,000: 5%

Rs 5,00,001 to Rs 10,00,000: 20%

Above Rs 10,00,000: 30%

For super senior citizens (aged 80 years and above):

Up to Rs 5,00,000: No Tax

Rs 5,00,001 to Rs 10,00,000: 20%

Above Rs 10,00,000: 30%

Tax professional Arun Tyagi, Malhotra Associates, said that the widespread shift to the new tax regime, now embraced by nearly 70% of taxpayers, has led to reduced collections in the government’s small savings schemes. “Since senior citizens are key investors in these schemes, the government might consider providing relief to senior taxpayers under the old tax regime by raising the basic tax exemption limit to Rs 5 lakh. This would effectively result in zero tax liability for senior citizens earning up to Rs 10 lakh annually.”

Here are the old tax regime tax slabs for senior and super senior citizens, assuming the basic exemption limit is increased to Rs 5 lakh for senior citizens (aged 60-79 years) and Rs 7 lakh for super senior citizens (aged 80 years and above):

For senior citizens (60-79 years):

Income up to Rs 5,00,000: No tax (basic exemption limit).

Income from Rs 5,00,001 to Rs 10,00,000: Tax at 20%.

Income above Rs 10,00,000: Tax at 30%.

For super senior citizens (80 years and above):

Income up to Rs 7,00,000: No tax (basic exemption limit).

Income from Rs 7,00,001 to Rs 10,00,000: Tax at 20%.

Income above Rs 10,00,000: Tax at 30%.

Let’s understand through an example how a senior citizen, 60 years of age, can pay zero tax on an annual income of up to Rs 10 lakh.

In this scenario, we assume the individual is utilising various deduction benefits, including Section 80C, Section 80CCD(1B), Section 80D, Section 80TTB, Section 80DDB, the Standard Deduction, and the family pension standard deduction. These deductions have been chosen because they are common and widely availed by most senior citizens.

Based on the provided deductions, here’s how the tax liability will be calculated for a senior citizen earning Rs 10 lakh per annum if the basic exemption limit is raised to Rs 5 lakh under the old tax regime:

Income and deductions:

Gross income: Rs 10,00,000

Basic exemption limit: Rs 5,00,000

Deductions:

Section 80C: Rs 1,50,000

Section 80CCD(1B) (NPS contribution): Rs 50,000

Section 80D (Health insurance premium): Rs 50,000

Standard deduction: Rs 50,000

Section 80TTB (Interest income deduction): Rs 50,000

Family pension standard deduction: Rs 15,000

Section 80DDB (Medical expenses for critical illness): Rs 1,00,000

Total deductions: Rs 1,50,000 + Rs 50,000 + Rs 50,000 + Rs 50,000 + Rs 50,000 + Rs 15,000 + Rs 1,00,000 = Rs 5,65,000

Taxable income calculation:

Gross income: Rs 10,00,000

Exemption limit: Rs 5,00,000

Deductions: Rs 5,65,000

Net taxable income: Rs 10,00,000 – Rs 5,00,000 (exemption) – Rs 5,65,000 (deductions) = Rs 0

Tax liability:

Since the net taxable income is Rs 0, the senior citizen will not pay any income tax under the old tax regime.