Q. I am a 59-year-old government servant. I will be turning 60 next month. I wish to alter my investment strategy after retirement. I wish to take benefit of the various tax exemptions available to retired individuals under the Income Tax Act. Can you please elaborate on various tax exemptions available to individuals who are 60+. Also, on turning 60, I will be receiving a lump sum amount from my National Pension Scheme Account. Can you please list some tax-saving investment options which can provide me long-term periodic income too?
Siri Kasineni, Jhansi
Before understanding various kinds of tax exemptions available to senior citizens, it is important to understand the criterion basis which individuals are classified as senior citizens and very senior citizens under the Income Tax Act.
- Senior citizens: At any point during the relevant year, the assessee must be at least 60 but not more than 80 years old.
- Very Senior Citizen: Must be 80 years of age or older at any point in the relevant year.
Now that we are clear with the criterion basis which a person is classified as a senior citizen for the purposes of Income Tax Act, let us now see the income tax rate applicable to senior citizens. Senior citizens pay income tax at a rate lower than that paid by other individuals.
Income tax rates for senior citizens (Individuals who are between 60 and 80)
|Annual Income||Income Tax Levied|
|Income up to ₹3 Lakhs||0 or Nil|
|Income between 3 Lakhs and 5 Lakhs||@10 %|
|Income between 5 Lakhs and 10 Lakhs||@20%|
|Income of more than ₹10 Lakhs||@30%|
Income tax rates for very senior citizens (Individuals between the age of 60 and 80)
|Total Annual Income||Income Tax Levied|
|Income of up to ₹5,00,000||0 or Nil|
|Income of more than ₹5 Lakhs but less than ₹10 Lakhs||@20%|
|Income of more than ₹10 Lakhs||@30%|
Under the Income Tax Act, a number of benefits/concessions are provided to individuals who are 60 and above. We have listed down below the key benefits available to senior citizens and very senior citizens.
Exemption from payment of advance tax
Under the Income Tax Act, every individual whose projected tax liability for the year is ₹10,000 or more should deposit tax to the government in advance, i.e., before the end of the financial year in the form of ‘advance tax’. However, senior citizens and very senior citizens are exempt from this requirement of paying advance tax, they can file tax at the end of the financial year.
Exemption on interest income
Under the Income Tax Act, a senior citizen’s or a very senior citizen’s income in the form of interest from deposits made with banks or post offices or cooperative banks up to a maximum of ₹50,000. Interest income from both fixed deposits accounts as well as savings accounts qualifies for a deduction under Section 80TTB of the Income Tax Act.
Section 80 D of the Income Tax Act provides tax exemption to an assessee in relation to: (A) expenses incurred on medical expenditure incurred by the assessee (an individual or HUF) for a senior citizen or very senior citizen up to a limit of ₹50,000, provided, such senior citizen or very senior citizen are not covered under health insurance, and (B) expenses incurred in relation to preventive health check-ups of parents of an assesse who are 60+, upto a limit of ₹50,000.
Reverse mortgage exemptions
A reverse mortgage is a loan taken against a residential property wherein the bank or the financial institution has a right to take over the residential property after the death of the borrower and sell it, the borrower gets recurring payment (income) from the bank till the time of his death. The income which a senior citizen or very senior citizen generates from a reverse mortgage as a monthly instalment is entirely exempt from income tax.
Now that we have addressed the first part of your question, let us explore the answer to the second part, i.e., how to save tax on the lump-sum payment one receives on retirement from the National Pension Scheme.
The National Pension Scheme, introduced by the central government in 2004, is a pension scheme similar to government schemes such as Public Provident Fund (PPF) or Employee Provident Fund (EPF). In the case of the national pension scheme, when the account holder reaches the retirement age, the plan matures, and he gets a lumpsum payment.
Sixty percent of the amount which a NPS account holder receives at the time of retirement is completely tax-free, and the account holder is not required to pay any tax on such amount. If the NPS account holder elects to purchase an annuity plan (pension plan) with the remaining 40%, even that part of his lumpsum payment will become tax exempt.
It is important to note that in order to avail of tax exemption on the 40% portion of the lump sum payment, the annuity plan should be purchased only from an insurance provider empanelled by Pension Fund Regulatory & Development Authority under the National Pensions Scheme.
Currently, there are 13 insurance companies which have been empanelled by the PFRDA they are:
- Life Insurance Corporation of India.
- HDFC Life Insurance Co. Ltd.
- ICICI Prudential Life Insurance Co. Ltd
- SBI Life Insurance Co. Ltd
- Star Union Dai-ichi Life Insurance Co. Ltd
- Kotak Mahindra Life Insurance Co. Ltd.
- IndiaFirst Life Insurance Co. Ltd.
- Max Life Insurance Co. Ltd.
- Canara HSBC Life Insurance Co. Ltd.
- Bajaj Allianz Life Insurance Company Limited.
- Tata AIA Life Insurance Company Ltd.
- Edelweiss Tokio Life Insurance Company Limited
- PNB Metlife India Insurance Company Limited
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Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.