Tax Planning is not only about making Investments but also about using all the available exemptions and deductions in the best possible manner so to reduce the overall tax outgo.
It is not only meant to save your current year tax but also about arranging your finances in such a way so you may achieve your goals along with optimizing your tax outgo.
For all this where you have to be aware of the products available to invest in, there you also have to be aware of the tax rules applicable.
As in many cases, it has been seen that there was not any requirement of doing any tax-saving investments at all, but due to ignorance, the assessee compromises with the monthly income and blocks his money in some Long-term investments.
This article is about the tax benefits for Senior citizens recently announced. Now there is an increase in Standard deduction, the higher deduction available in the Interest income, and Health insurance premiums, Relaxation in filing ITR. Let’s get into the details of the specifics:
Tax benefits for Senior Citizens – Details
- Standard deduction: Well, this change is not specifically for Senior Citizens but for all salary earners. Those who are getting pension Income can take benefit of this provision since Pension also gets counted as a Salary from the taxation Point of view.
A Standard Deduction of up to Rs 50,000 can now be claimed from the Pension/Salary Income. This is actually a replacement of Transport and Medical allowance that Salaried people used to get in their salary, but since pensioners were not even getting those allowances so this is a clear benefit to them.
- Health Insurance premium (Section 80D): With the rising health treatment costs which are also impacting the health insurance premiums in all age slabs, the tax benefits for senior citizens u/s 80D have been increased from Rs 30,000 to Rs 50,000.
This benefit can be claimed by any assessee if he/she is paying health insurance premiums for self (If a senior citizen), and/or dependent senior citizen parents.
The total benefit also includes the Preventive health check-up costs of up to Rs 5,000/- (Also Read: Tax saving Mutual Funds for Conservative Investors)
- Interest Income (Section 80TTB): This is a new section inserted into the income tax act. And is a sort of extension of section 80TTA, where Rs 10000 from Savings bank account Interest is exempted for all assesses.
The new Section 80TTB is meant for Senior citizens’ interest income earned from bank and post office Savings and Fixed deposits. Here they can claim a deduction of Rs 50,000 or the Interest earned, whichever is less.
However, no deduction u/s 80TTA will be allowed in these cases.
- Medical treatment expenses (Section 80DDB): This section offers deduction in respect of expenses done in a financial year on specified diseases for self or on dependent children, Spouse, Parents, Brother or Sister.
Earlier the deduction was different for Senior citizens and Super Senior Citizens and was limited to Rs 60000 or Rs 80000 respectively.
But from FY 2018-19, the deduction amount has been increased to Rs 100000 or the actual amount spent whichever is less, for both the categories.
For the purposes of section 80DDB, the following shall be the eligible diseases or ailments:
(i) Neurological Diseases where the disability level has been certified to be of 40% and above, —
(a) Dementia ;
(b) Dystonia Musculorum Deformans ;
(c) Motor Neuron Disease ;
(d) Ataxia ;
(e) Chorea ;
(f) Hemiballismus ;
(g) Aphasia ;
(h) Parkinson’s Disease ;
(ii) Malignant Cancers ;
(iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;
(iv) Chronic Renal failure ;
(v) Hematological disorders :
(i) Hemophilia ;
However, please note that if there is any insurance claim asked for on said treatments, then the claim amount be deducted from the Income-tax deduction amount.
5. Relaxation on Filing ITR by Senior Citizens: In Budget 2021, senior citizens above 75 years of age, having only interest and pension income are given relaxation in filing Income Tax return.
He/she would be required to fill and submit some specified forms, to specified banks which will calculate the tax liability (after adjusting Chapter VI A Deductions, and rebate u/s 87A) and deduct TDS.
Tax Planning is not limited to making investments. It’s a broad subject and helps you save tax at different levels. Awareness of the tax rules is important to do proper tax planning.
The provisions mentioned above for tax benefits for senior citizens in the article were announced in Budget 2018 and are applicable from FY 2018-19 / AY 2019-20.; and are valid in AY 2020-21 & beyond too.