The income tax department provides some benefits only to the senior citizens. Recently, the Central Boards of Direct Taxes (CBDT) issued a new brochure detailing all tax benefits available to seniors or retirees (60 years and above).
It deals with the tax treatment of retirement benefits such as gratuities, provident funds, pensions, leave encashments, etc. According to a CNBC report, the tax benefits apply to all retirees (government and private sector employees) on their retirement payments, such as lump sum payments, commuted pensions, etc.
Here are the details of income-tax benefits available to seniors.
Provident Fund
Statutory and public Provident fund withdrawal is entirely tax-free for all. However, in the case of the recognised provident fund (provident funds covered under the Provident Fund Act, 1952), the maturity amount is tax-free only when the employee has completed five years of uninterrupted service.
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A provident fund is unrecognised when it is not approved by the Income-tax commissioner.
Gratuity
Gratuity is tax-free for all retired employees up to Rs 20 lakh. For government employees, full gratuity is tax-free, whereas for private sector retirees, it has a Rs 20 lakh ceiling for tax exemption.
Pension
Pension is taxed as per slab rates similar to the income from salary. A standard deduction of Rs 50,000 is available for all pensioners; however, if there is any pension arrear, the relief under Section 89 of the Income-tax Act will be applicable to lower the tax liability.
Commuted Pension
A commuted pension is the lump sum payment of a portion of the pension. For government employees, the full amount of commuted pension is tax-exempted. For others, the exemption is linked with the gratuity payment. If a retiree receives the gratuity, only one-third of the commuted pension is tax-exempted. The tax exemption is 50 per cent (half) of the commuted pension if no gratuity is paid.
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National Pension System
A 60 per cent of the National Pension System (NPS) corpus at the time of retirement is paid to the retiree, which is tax-free under Section 10(12A). The remaining 40 per cent, which is used to buy an annuity, is taxable based on the retiree’s Income-tax slab.
Leave Encashment
Leave encashment received at the time of retirement is fully tax-exempted for government employees. For other employees (non-government), the exemption can be for a maximum of Rs 3 lakh under Section 10(10AA).
Interest Income
Interest income of seniors up to Rs 50,000 from savings, fixed deposits, or any other deposit with a bank, post office, or cooperative bank is tax-exempt under Section 80TTB.
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TDS On Interest
The Tax Deducted At Source (TDS) on interest income does not apply if the income is less than the minimum taxable limit. In such cases, retirees/senior citizens can give Form 15H to their bank or post office, intimating them not to deduct TDS.
Medical Insurance Premiums
Seniors can enjoy a tax deduction of up to Rs 50,000 on premiums paid for health insurance or preventive checks for themselves or their spouses. The deduction is available under Section 80D.
Medical Treatment For Specified Diseases
Besides the insurance premium, seniors can also claim tax deductions on payments for medical treatment. The maximum deduction allowed is Rs 1 lakh under Section 80DDB. The treatment should be for a specified disease, such as cancer, AIDS, dementia, chronic renal failure, etc.
