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Tax Planning for the Retired
June 13 , 2013

Since you do not have earnings taxation would seem to be unnecessary. However you will be taxed on returns from investments made. But there is reason to cheer because the government favours the elderly when it comes to taxation. Retirees would have worked all their life and contributed to the development of the economy in general. Government gives them priority by taxing them on higher income levels than general taxpayers and offering special schemes and benefits to encourage them to continue earning, investing and providing for themselves.

Income slabs for 2012-2013

From the year 2011 a new category called very senior citizens for those aged above 80 years has been included. Senior citizens are those aged 60 years and above but less than 80 years.

Income slab (in Rs)

Tax for senior citizens above 60 years      

Tax for senior citizens above 80 years

0 to 2, 00,000

No tax

No tax

2, 50,000 to 5, 00,000

10%

No tax

5, 00,000 to 10, 00,000

20%

20%

Above 10, 00,000

30%

30%

Senior citizens can also submit Form No 15H for no deduction of tax at source to the payer of interest, or for withdrawals from NSS account, and income from units of mutual funds.

The key to effective management of taxes is fine-tuning your investments so they draw less tax. Returns from certain financial instruments attract a larger tax than others. For a low tax, high income retired life you have to plan your way in a systematic manner. Some investment avenues that are tax-efficient are discussed in the section on Managing Investments.

Below are some useful deductions you can claim on Income Tax.

Medical deductions

Premiums paid up to Rs 20, 000 per year for medical insurance of a senior citizen (age above 60 years) are deductible for income tax under section 80 D.

Up to Rs 60, 000 spent on medical expenses of a senior citizen for treatment of specified diseases is tax deductible under section 80 DDB. The individual should furnish a certificate in Form 10-I with the return of income issued by a specialist working in a government hospital. 

Deductions under Section 80 C

The limit under this section is Rs 1, 00,000. Included under this heading are savings schemes like NSC, SCSS, PPF, other pension schemes, and others as discussed below in brief:

  • Repayment of home loan EMIs up to Rs 1, 00,000 is deductible. The structure of EMIs is such that towards the end of repayment term major portion of it is made of principal as against interest. Interest on EMIs of home loan is also deductible up to Rs 1, 50,000 under section 24.
  • Amount spent on registration and stamp duty of house can be claimed under section 80 C in the year of purchase of house.
  • Expenses made on tuition fee for full-time education of up to 2 children in a school, university or educational institution is deductible.
  • 5 year bank fixed deposits can be claimed for deduction under this section. Interest received is not tax exempt.
  • Similar to FDs of banks deposits in 5 year post office time deposits can be claimed for deduction.

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