Important Tax Deductions And Benefits Senior Citizens Shouldn’t Miss While Filing ITR

Like the salaried and other taxpayers, senior citizens are also required to file their tax return if their income exceeds the basic exemption limit. Senior citizens (aged 60 and above) and super senior citizens (aged 80 years or above) usually earn income from pension, interest on savings accounts or fixed deposit schemes, renting out a house property, income from capital gains, senior citizen saving schemes, post office deposit schemes, among others.

Generally senior citizens opt for the New Income Tax regime these days since the new regime is hassle-free with less paperwork. Under the Old Tax Regime, the income tax exemption limit for senior citizens is Rs 3 lakh, and for super senior citizens, this limit goes up to Rs 5 lakh. Under the new regime, however, the threshold exemption is only Rs 3 lakh as the tax rates are the same for all individuals.

Thankfully, there are various exemptions and relaxations available specifically for senior citizens which are aimed at easing their tax burden and compliance requirements.

“Most notably, in 2021, the government introduced a new section wherein senior citizens who earn only pension and interest income from the same specified bank are not required to file income tax returns. Further, a super senior citizen (aged 80 or above) can file their tax return in offline/paper mode by using ITR Form 1 or 4, in addition to the online option,” informs Shubham Jain, Associate Director, Nangia Andersen LLP.

Key Deductions and Exemptions

• FY 2024-25, various income tax deductions and benefits are available to senior citizens in India under the regular (old) tax regime:

• Health insurance and medical expenses – up to Rs 50,000 (Section 80D) in comparison to Rs 25,000 for individuals aged 59 and below.

• Treatment of certain serious illnesses – up to Rs 1,00,000 (Section 80DDB) compared with Rs 40,000 available for individuals aged 59 and below.

• Interest earned from savings and fixed deposits – up to Rs 50,000 (Section 80TTB). This deduction is available only for senior citizens and super senior citizens.

• Standard Deduction from Pension Income – Under the old tax regime, pension received is treated as salary income and, therefore, is eligible for a standard deduction of Rs 50,000. For FY2024-25, the standard deduction on pension income has been increased to Rs 75,000 under the new tax regime.

• Higher Income Exemption Limit – “The basic exemption limit is pegged at Rs 3,00,000 for senior citizens (as opposed to Rs 2,50,000 for individuals aged 59 and below) and at Rs 5,00,000 for super senior citizens. This is also under the regular (old) tax regime,” says Sudhakar Sethuraman, Partner, Deloitte India.

For FY24-25, no income tax will be charged up to an income of Rs 7 lakh in the new scheme also. “It is important to note that the fixed deposit interest will be charged on an accrual basis and not on a receipt basis. Hence, in case the FD interest for the FY 24-25 is Rs 1 lakh, but received in the next year, even then this amount will be offered for tax in the current AY25-26. This is a little painful, especially for senior citizens, and is in contrast with capital gain on sale of, say, mutual funds where the tax is only charged on a receipt basis,” says Vivek Jalan, Partner, Tax Connect Advisory Services LLP.

Further, senior citizens are not required to pay advance tax if they do not earn any income from business or profession. They are also not required to file ITRs in case their age is 75 years or more, and the total income consists of only pension and interest income from the same bank in which they receive pension. The relaxation is available where the person submits a declaration to the bank and it deducts TDS under Section 194P.

Special Exemptions on Pension or Annuity Income

“An important tax-efficient scheme for senior citizens is the transfer of a house under the reverse mortgage scheme. Here, the monthly installments received will not attract any capital gains tax,” informs Jalan.

In a reverse mortgage loan, the bank or lender recovers the loan amount when the senior citizen passes away. It can sell the house to recover both the loan principal and interest. And, if any money is left, then it may be passed on to the borrower's heirs,”

Claiming Deductions for Medical Expenses

Under Section 80DDB of the Income Tax Act, “senior citizens can claim deductions for medical treatment expenses even if they don’t have health insurance. This provision offers significant relief for those dealing with high medical costs due to serious illnesses up to Rs 100000,” says Deepak Kumar Jain, Founder and CEO, TaxManager.in.

Relaxations for Seniors in Terms of Filing Returns

“Super senior citizens are allowed to file income tax return in paper mode, provided they have a pension or income from other sources. If they have income from a profession or business, they would need to file online. Senior citizens, however, cannot avail of offline or paper mode return filing,” says Jain.

A digital signature is not required in most cases. They can verify ITR through Aadhaar OTP or can send the ITR V Acknowledgment to CPC Bangalore within the stipulated period of 30 days from the date of filing.