Income tax benefits for senior and very senior citizens for AY 2020-21
New Delhi: The income tax law of India offers several benefits to senior citizens and very senior citizens. Note that only resident senior citizens can avail these tax benefits. As per the Income Tax rules, a person between 60 years and 80 years of age is termed as a ‘senior citizen’ and a person above 80 years of age is classified as ‘very senior citizen.’ Benefits available to resident senior and very senior citizens range from higher exemption limit to deductions.
List of income tax benefits available to senior citizens and very senior citizens:
1. Tax exemption limit: Senior citizens and very senior citizens are granted a higher exemption limit compared to regular taxpayers or non-senior citizen taxpayers. The exemption limit for non-senior citizen is Rs 2.5 lakh. However, for FY 2020-21, the exemption limit for a senior citizen is Rs 3 lakh meaning additional benefit in the form of Rs 50,000 is available to a resident senior citizen. Very senior citizens are granted a higher exemption limit of Rs 5 lakh.
2. Advance tax exemption: As per section 208 of the Income Tax Act, every person whose estimated tax liability for the financial year is Rs 10,000 or more, shall pay the tax in advance, in the form of ‘advance tax’. However, section 207 of the I-T Act offers some relief to senior and super senior citizens from payment of advance tax. A resident senior citizen not having any income from business or profession is not liable to pay advance tax.
3. Online ITR filing not mandatory: Since older generation is not that tech-savvy and often struggle with technology, senior citizens filing return of income in Form ITR 1 or ITR 4 can file their income tax return in paper mode. This means that for very senior citizens, electronic filing of ITR 1 or ITR 4 (as the case may be) is not mandatory. However, if they are comfortable with technology and have no problem filling their return online, they may opt for e-filing as well.
4. Standard Deductions from Pension Income: Senior citizens are allowed a standard deduction of Rs 50,000 on account of their pension income.
5. No tax under the Reverse Mortgage Scheme: A senior citizen may reverse mortgage any of his accommodation to make monthly earnings. The ownership of the property remains with the senior citizen and they are given monthly payments for it. The amount paid in instalments to the owner is exempted from Income Tax.
6. Tax Deduction benefits:
- Interest earned on bank deposits (80TTB): Interest earned on saving deposits and fixed deposit with banks or post office or co-operative banks for an amount up to Rs 50,000 earned by the senior citizen is eligible for deduction under Section 80TTB of Income Tax Act. There will be no deduction up to Rs 50,000. Note that this limit of Rs 50,000 has to be computed for every bank individually.
- Payment of insurance premium (80D): As per Income Tax rules, medical insurance premium paid up to Rs 50,000 in a year by a senior citizen is allowed to be claimed as a deduction under Section 80D of the I-T Act. If the senior citizen is paying medical insurance premiums for their parents who are also senior citizens, they can claim an additional deduction of up to Rs 50,000 meaning they are eligible for a deduction of up to Rs 1 lakh.
- Medical treatment (80DDB): As per section 80DDB of the Income Tax Act, a senior citizen taxpayer can claim tax deduction of up to Rs 1 lakh for expenditure incurred on medical treatment of specified diseases.