ITR for senior citizens: The time to file Income Tax Returns (ITR) started for many in April 2024 who do not depend on their employers for their Form 16. Filing income tax returns is quite challenging for many, particularly senior citizens, who may encounter difficulties due to prevalent misconceptions.
One prevalent misunderstanding is the belief that individuals are exempt from filing returns if their income has already been subjected to tax deduction at source (TDS). Therefore, it is crucial to gain a comprehensive understanding of how tax regulations are applied in India.
For tax purposes in India, an individual resident aged 60 years or older but less than 80 years during the previous year is categorised as a Senior Citizen, while a Super Senior Citizen pertains to an individual resident who is 80 years or above at any point during the previous year.
Tax-saving investments for the financial year 2023-24 must be made by March 31, 2024, to qualify for income tax returns for AY2024-25. The new tax regime does not include benefits such as Section 80C for medical insurance premiums and interest income, while the old regime still provides benefits under various sections.
Senior citizens who have opted for the National Pension Scheme (NPS) should note that the taxability of the scheme depends on the tax regime you choose. The National Pension Scheme (NPS) was launched in 2004 as a market-linked pension plan to replace the old pension scheme.
Administered and regulated by the Pension Fund Regulatory Authority of India (PFRDA), NPS is available for Indian citizens aged between 18-70 years. The superannuation age within NPS is typically set at 60, however, individuals have the option to continue investing in the scheme until the age of 75. NPS offers various benefits to both pre-retirees and retirees. Pre-retirees can take advantage of tax deductions on their contributions, while retirees can benefit from tax-free lump sum withdrawals, tax-efficient annuity income, and ongoing deductions.
Under the old tax regime, NPS offers tax benefits under three sections of the Income Tax Act, 1961. Under the new tax regime, a deduction under Section 80CCD (2) of the Income Tax Act by investing in NPS can be availed.
How is NPS amount taxed for senior citizens
“Old tax regime allows various deductions and exemptions which otherwise may not be allowed under the new tax regime u/s 115BAC. If an individual follows old tax regime, then he is eligible for the following deductions pertaining to the pension income,” said Dr Suresh Surana, Founder, RSM India.
Tax benefits on Partial withdrawal
Taxpayer would be eligible for tax exemption on the amount withdrawn upto 25% of the self contribution, on such terms and conditions as may be specified by PFRDA u/s 10(12B).
Tax benefit on Lumpsum withdrawal
Taxpayer would be eligible for tax exemption on lumpsum withdrawal of 60% of accumulated pension wealth upon attaining the age of 60 or superannuation under section 10(12A).
Further, the taxpayer may also avail tax deduction benefits on contribution to the NPS as follows:
Section
|
Particulars | Quantum of deduction/exemption |
80CCD(1) | Employee’s Contribution to National Pension Scheme | In case of Employment: Deduction would be lower of 10% of salary* or the overall limit of Rs 1,50,000
In case of Self-employed: Deduction would be lower of 20% of gross total income or the overall limit of Rs 1,50,000 |
80CCD(1B) | Additional deduction on Employee’s Contribution | An additional deduction of upto Rs. 50,000 would be available over and above the limit of Rs. 1,50,000 |
80CCD(2) | Employer’s Contribution to National Pension Scheme | Deduction would be upto 10% of the salary* (14% of the salary in case of Central or State government employee) |
“Salary” includes Basic Salary plus Dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
“If a taxpayer goes with the new tax regime, the aforementioned deductions and exemptions may not be available except deduction u/s 80CCD(2) which is available to taxpayers opting for new tax regime. However, w.r.t. senior citizens who receive pension benefits under the National Pension System (NPS) in India, choosing the appropriate tax regime depends on various factors such as their total income, deductions available, and personal financial goals. Thus, senior citizens receiving pension benefits under NPS should assess their total income, deductions and/or exemptions available, and tax-saving goals to determine which tax regime suits them best,” Surana added.
Explaining the rationale to choose the suitable tax regime, Rahul Bhagat, CEO of DSP Pension Fund, said: “The decision to opt for the old income tax regime or the new regime depends on various factors including individual tax liabilities, financial goals, and personal preferences. While the old regime allows for additional tax deductions, including contributions to NPS, it’s essential to evaluate whether the benefits outweigh the tax savings offered by the new regime. Under the new tax regime, individuals enjoy lower tax rates but end up forfeiting certain deductions and exemptions, including those related to NPS contributions. Therefore, individuals should conduct a comprehensive analysis considering their overall financial situation, long-term investment objectives, and tax implications before deciding whether to stick to the old regime to maximise NPS benefits or transition to the new regime for a simplified tax structure and potentially lower tax liabilities.”