Tax exemptions for senior citizens. Answers to your personal finance queries

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May 17, 2020 10:52 pm | Updated May 18, 2020 09:49 am IST

Q. With reference to the latest Budget, I want a clarification about exemptions to senior citizens. Currently, senior citizens are taxed starting from ₹3 lakh and super senior citizens from ₹5 lakh. They are exempt from paying advance tax quarterly. I want to know if the exemptions continue in new tax regime

Paramasiva Chari

A. If the senior citizen opts for the old regime, the taxability of seniors and super seniors shall continue as mentioned in the query. With effect from April 1, 2020, if a senior citizen opts to pay tax as per rates of the new regime, he/she shall not enjoy the special basic exemption limits as per the old regime.

The senior citizen, based on his income level and sources of income, may choose whichever regime is most beneficial at the time of filing the return. For those assessees having business income, the choice is available only once. Senior citizens having no business income do not have to pay advance tax under the new regime as well.

Q. I had taken an early retirement from a corporate job before attaining 60. The last EPF contribution made by my employer was in August, 2018. Subsequently, I withdrew the entire corpus of accumulated PF (excluding pension) in April 2019. It included the interest for FY 2018-19 also. How do I compute the tax payable for the period when there was no contribution? There was no TDS on withdrawal.

Sandeep Saha

A. It is assumed that your retirement from employment was in August 2018. Withdrawal of the entire corpus of accumulated PF is not taxable if you had completed 5 years of continuous employment, including your period of service with your previous employers, if any. If this condition is not satisfied, then the withdrawal is taxable based on your respective tax slab rates wherein employer’s share will be taxed as “Income from Salaries” while employee’s share is taxed under “Income from Other Sources”.

Interest accrued on the contributions from both employee and employer at the time of employment is tax exempt if withdrawal was done after completion of 5 years of continuous employment, if not, interest will be taxed under the above-mentioned heads of income.

However, if the corpus has not been withdrawn immediately on retirement, the interest accruing post retirement is chargeable to tax. ITAT ruling of Bengaluru bench in the case of ACIT V Dilp Ranjrekar, 2017, held that the interest accrued since retirement to complete withdrawal of the entire corpus to be taxable under “Income from Other Sources”.

Q. I am a retired senior citizen aged 72. My wife is a home maker aged 69. My tax consultant says interest on SB account is to be divided into two and be shown in each of our IT returns. Also, please clarify if any deduction is allowed for FD interest income.

Mariadoss Joseph

A. Interest derived from FD/RD/SB etc. with any bank, co-operative society engaged in banking activities and post office in the hands of senior citizens amounting up to ₹ 50,000 can be claimed as deduction. Hence,₹50,000 can be claimed as maximum deduction in case interest derived is higher than ₹50,000. For individual bank accounts held separately in the names of yourself and your wife, respective interest credits are to be considered in your respective ITRs and each of you can claim the deduction of up to ₹50,000. In case of joint account maintained only for the purpose of easy operation and the funds relate to only one person, then the SB interest needs to be shown only in the ITR of the person whose money is lying in the SB account.

On the contrary, if the SB account has funds of both the persons, interest derived on such funds is to be divided in the hands of the respective depositors i.e. yourself and your wife. Therefore it is suggested to follow the advise of your consultant as the source of the money into the concerned bank account is known to him.

(The author is partner, GSS Associates, Chartered Accountants, Chennai)

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