Union Budget 2025: Some tax benefits that could help senior citizens
With rising medical costs and inflation, the amount that the elderly have to spend every month has been on the rise.
Written by Radhika Viswanathan & Akshaya K
Finance Minister Nirmala Sitharaman is set to present her eighth consecutive Union Budget on February 1, 2025. Speculation has already begun on what the Budget would hold for taxpayers. Much of the focus would be on the salaried class, but senior citizens’ concerns would also need to be addressed. With rising medical costs and inflation, the amount that the elderly have to spend every month has been on the rise. With only their savings or investments to fall back on, their financial security would need to be taken care of. Better return on investments, tax benefits, or even administrative measures can ease their compliance burden. Here is a list of potential benefits for them that could be considered for Budget 2025.
Individuals aged 75 years and above are exempt from filing income-tax (I-T) returns if their income consists solely of pension and interest income, with the interest income earned from the same specified bank in which pension is credited. In such cases, the specified bank will deduct the applicable tax, eliminating the need for filing return. The age threshold for this provision could be lowered to 70 years, broadening the benefit to include more senior citizens.
Furthermore, for those not covered by the above-mentioned provision (i.e., those with income sources other than interest and pension income), the government could introduce a simplified tax return form to make the filing process less burdensome and more accessible.
Currently, the basic exemption limit for senior citizens is Rs 3 lakh under both the old and new tax regimes. For super senior citizens (aged 80 years and above), the basic exemption limit is Rs 5 lakh under the old regime, while it remains at Rs 3 lakh under the new regime.
Given the government’s ongoing efforts to encourage individuals to adopt the new (default) tax regime, there is an expectation that the basic exemption limit for senior citizens, under the new regime, will be increased. This adjustment would help bridge the gap and encourage greater adoption of the new regime, especially as many deductions available under the old regime are not available under the new tax regime.
Under Section 194A, banks and financial institutions are required to deduct tax at source on interest income exceeding Rs 50,000 for senior citizens. However, senior citizens can avoid or reduce the quantum of this deduction by submitting Form 15H to the bank or financial institution or by applying for a lower tax deduction certificate. If a senior citizen misses submitting Form 15H, they are required to file a tax return to claim refund of the taxes deducted, even if their total income is below the basic exemption limit. Increasing the threshold for TDS to align with the basic exemption limit would simplify the process and reduce the need for filing returns in many cases.
To ease the financial strain on senior citizens, specific provisions could be introduced to provide tax exemption or deductions on interest earned from the Senior Citizens Savings Scheme (SCSS), 2024.
Senior citizens tend to accumulate significant savings in post-office savings accounts. Hence, the government could consider enhancing tax benefits on the interest earned from these accounts. Currently, tax exemption is available on post office savings interest of up to Rs 3,500 on individual accounts and up to Rs 7,000 for joint accounts under Section 10(15)(i). Since these limits have not been changed for a long time, senior citizens stand to gain from a hike in tax benefits.
With rising medical costs, it is expected that the Union Budget will include enhanced tax benefits for senior citizens on medical expenses. Currently, a deduction of Rs 50,000 is available under Section 80D for payments towards health insurance premium, preventive check-up, or medical expenditure. The upcoming Budget may introduce specific provisions allowing deductions for out-of-pocket medical expenses, providing additional financial relief to senior citizens.
The National Pension Scheme (NPS) currently allows tax-free withdrawal of up to 60 per cent of the corpus, with at least 40 per cent required to be earmarked for annuity. To ease the tax burden on senior citizens upon retirement and promote long-term savings and financial security, the government could consider relaxing taxes on the annuity portion by exempting it or applying a reduced special rate. Additionally, tax exemption could also be provided for pension from the Employee Pension Scheme, which would offer substantial financial relief to senior citizens.
While previous Budgets have aimed to reduce tax slabs for individuals under the new tax regime, the expectation is for further tax relief. By increasing tax exemptions and deduction limits, besides providing targeted benefits for senior citizens, the government could significantly reduce the financial burden of this demographic.
(Radhika Viswanathan is executive director and Akshaya K is assistant manager with Deloitte Haskins & Sells)
Written by Radhika Viswanathan & Akshaya K
Finance Minister Nirmala Sitharaman is set to present her eighth consecutive Union Budget on February 1, 2025. Speculation has already begun on what the Budget would hold for taxpayers. Much of the focus would be on the salaried class, but senior citizens’ concerns would also need to be addressed. With rising medical costs and inflation, the amount that the elderly have to spend every month has been on the rise. With only their savings or investments to fall back on, their financial security would need to be taken care of. Better return on investments, tax benefits, or even administrative measures can ease their compliance burden. Here is a list of potential benefits for them that could be considered for Budget 2025.
Individuals aged 75 years and above are exempt from filing income-tax (I-T) returns if their income consists solely of pension and interest income, with the interest income earned from the same specified bank in which pension is credited. In such cases, the specified bank will deduct the applicable tax, eliminating the need for filing return. The age threshold for this provision could be lowered to 70 years, broadening the benefit to include more senior citizens.
Furthermore, for those not covered by the above-mentioned provision (i.e., those with income sources other than interest and pension income), the government could introduce a simplified tax return form to make the filing process less burdensome and more accessible.
Currently, the basic exemption limit for senior citizens is Rs 3 lakh under both the old and new tax regimes. For super senior citizens (aged 80 years and above), the basic exemption limit is Rs 5 lakh under the old regime, while it remains at Rs 3 lakh under the new regime.
Given the government’s ongoing efforts to encourage individuals to adopt the new (default) tax regime, there is an expectation that the basic exemption limit for senior citizens, under the new regime, will be increased. This adjustment would help bridge the gap and encourage greater adoption of the new regime, especially as many deductions available under the old regime are not available under the new tax regime.
Under Section 194A, banks and financial institutions are required to deduct tax at source on interest income exceeding Rs 50,000 for senior citizens. However, senior citizens can avoid or reduce the quantum of this deduction by submitting Form 15H to the bank or financial institution or by applying for a lower tax deduction certificate. If a senior citizen misses submitting Form 15H, they are required to file a tax return to claim refund of the taxes deducted, even if their total income is below the basic exemption limit. Increasing the threshold for TDS to align with the basic exemption limit would simplify the process and reduce the need for filing returns in many cases.
To ease the financial strain on senior citizens, specific provisions could be introduced to provide tax exemption or deductions on interest earned from the Senior Citizens Savings Scheme (SCSS), 2024.
Senior citizens tend to accumulate significant savings in post-office savings accounts. Hence, the government could consider enhancing tax benefits on the interest earned from these accounts. Currently, tax exemption is available on post office savings interest of up to Rs 3,500 on individual accounts and up to Rs 7,000 for joint accounts under Section 10(15)(i). Since these limits have not been changed for a long time, senior citizens stand to gain from a hike in tax benefits.
With rising medical costs, it is expected that the Union Budget will include enhanced tax benefits for senior citizens on medical expenses. Currently, a deduction of Rs 50,000 is available under Section 80D for payments towards health insurance premium, preventive check-up, or medical expenditure. The upcoming Budget may introduce specific provisions allowing deductions for out-of-pocket medical expenses, providing additional financial relief to senior citizens.
The National Pension Scheme (NPS) currently allows tax-free withdrawal of up to 60 per cent of the corpus, with at least 40 per cent required to be earmarked for annuity. To ease the tax burden on senior citizens upon retirement and promote long-term savings and financial security, the government could consider relaxing taxes on the annuity portion by exempting it or applying a reduced special rate. Additionally, tax exemption could also be provided for pension from the Employee Pension Scheme, which would offer substantial financial relief to senior citizens.
While previous Budgets have aimed to reduce tax slabs for individuals under the new tax regime, the expectation is for further tax relief. By increasing tax exemptions and deduction limits, besides providing targeted benefits for senior citizens, the government could significantly reduce the financial burden of this demographic.
(Radhika Viswanathan is executive director and Akshaya K is assistant manager with Deloitte Haskins & Sells)
