Senior citizens mostly invest in fixed deposits and post office schemes. Keeping this in mind, the government has increased the exemption limit for interest income. This will include interest received from bank deposits and post office deposits. The exemption limit has been increased from Rs 10,000 to Rs. 50,000.
The government has also said that senior citizens need not pay Tax Deducted at Source (TDS) for interest income from fixed deposits and recurring deposits. This will come under Section 194A of the Income Tax Act. At present, senior citizens are paying 10% TDS on interest income. If they are not in the taxable bracket, they can use Form 15H to avoid TDS.
Higher Tax Deductions
Senior citizens can claim tax deductions for health insurance premium that they pay under Section 80D. The present limit is Rs 30,000 per year. The government has increased this to Rs 50,000 per year. This will also apply to all health insurance policies taken in the name of senior citizens.
Expenses incurred for critical illnesses can be claimed under Section 80DDB of the Income Tax Act. The deduction is Rs 60,000 per year for senior citizens and Rs 80,000 per year for super senior citizens. This tax deduction has now been increased to Rs 1 lakh per year for both senior citizens as well as super senior citizens. Documents or bills will have to be submitted as proof for claiming this tax deduction.
As you might know, the government has introduced a standard deduction of Rs 40,000 for the salaried class. This can be claimed instead of medical and transport allowances. This standard deduction is also applicable to pensioners. The Central Board of Direct Taxes has said that taxpayers need not submit any documents or bills for claiming this standard deduction.
Pradhan Mantri Vaya Vandana Yojana
The government of India launched the Pradhan Mantri Vaya Vandana Yojana for senior citizens aged 60 years and above on 4th May 2017. Life Insurance Corporation (LIC) of India will be the insurance firm that operates the scheme. This is a pension scheme. The scheme pays an assured return of 8% per year for 10 years. The investors can choose the frequency of the payment. The minimum entry age for the scheme is 60 years but there is maximum entry age. This scheme was only till May 2018.
The government has now said that the benefits of Pradhan Mantri Vaya Vandana Yojana will be extended up to March 2020. The interest will continue to be at 8%. At present, the maximum investment that an individual can make under the scheme is Rs 7.5 lakh. The government in this budget increased this limit to Rs 15 lakh. (Read more in this article)