Filing the income tax return is a task that most individuals dread because of all the work involved. Completing the return filing process fulfils a significant obligation for salaried individuals, business owners, and professionals alike.
But pensioners have their own issues, so they must file their returns carefully. There are specific things that they should pay attention to, and here are some of the common ones.
Pension Income
Pensions contribute a significant portion of a pensioner's income. This is a regular sum that they receive from their previous employers. Pensioners must distinguish between a pension they receive from an investment that yields a regular sum and the amount they receive from their employers after they retire. The sum that is received as a pension is taxable and hence has to be included in the income tax return. If they received the amount as a pension from their ex-employer, it falls under the income from salaries category. This aspect benefits the individual by allowing them to claim a standard deduction under the head salary, thereby reducing the taxable amount. If the pension is received from some other area, like an insurance policy, then this would be taxable under the head of income from other sources.
Income From Other Sources
Another source of income that is significant for a pensioner is normally income from other sources.
A large part of this consists of investment income, which is earned from the various investments that have been made. If there is a significant portion of the investment in debt instruments, then interest income will fall under this specific category. Similarly, investment in schemes like the Senior Citizen Savings Scheme or even Government of India bonds falls under this particular category. If there are shares or mutual funds where there is a dividend that has been received, then the dividend too is classified as income from other sources. A significant point that should not be forgotten is that if there is a family pension that is received, then this comes under this particular head and not salaries. There is also a standard deduction that is available for family pension, but this is restricted to Rs 15,000 for the financial year 2023–24.
Tax Regime Selection
This year, the pensioner needs to be careful about the choices that they make because the new tax regime is the default regime, and if the old tax regime is not selected, then the calculations would be made under the new regime rates and conditions. Before choosing the tax regime, it's important to consider a few factors.
One is the extent of the deductions that are being claimed because it is likely that, apart from Section 80C investments and some other things like medical insurance premiums, other big-ticket deductions might not be claimed. Under the old tax regime, while there is a higher basic exemption limit for senior citizens at Rs 3 lakh and for super senior citizens at Rs 5 lakh, the rebate under Section 87A is restricted to Rs 5 lakh. On the other hand, under the new tax regime, the applicability of Section 87A is up to Rs 7 lakh.
Other Benefits
A look at some of the other benefits for pensioners is also essential so that these are not missed out. One of the automatic benefits is that there is no tax deduction at source till Rs 50,000, which is higher than that for normal individuals. If they select the old tax regime, then Rs 50,000 is also available as a deduction for interest income from savings bank accounts and fixed deposits. There is also no need for them to pay advance tax, so this saves them a lot of interest that would have normally arisen if the advance tax conditions were not fulfilled.
Arnav Pandya is founder of Moneyeduschool
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