Will proposed new income tax slabs rates benefit senior citizens? Here’s the answer

Capitalstars Investment Advisor

The proposed new tax structure does not offer a higher tax exemption limit for senior citizens.

The new lower income tax rate regime proposed in the budget 2020 does not provide a higher tax exemption limit for resident senior and super senior citizens, unlike what is available to them in the existing tax regime. As per current income tax laws, the basic income threshold exempt from tax for senior and super senior citizens is Rs 3 lakh and Rs 5 lakh respectively. This itself gives them some tax relief in the existing structure. Such relief (via higher basic income tax exemption limits) is not provided in the new regime which treats all individuals (non-senior citizens and senior citizens) equally.

Seniors should calculate whether they would pay less tax in the existing or new regime keeping this element in mind.

Calculations show that at each income level of a senior citizen there is a specific total deduction/exemption level that he/she needs to claim such that the tax payable under both regimes would be equal. This is the break-even deduction/exemption level. If the person is claiming/intends to claim more than this break-even amount of total deduction/exemption, then the tax payable by him in the existing tax regime would be less than that in the new regime.

For a senior with Rs 7.5 lakh income, the break-even level of total deduction/exemption to be claimed in the existing regime for tax payable to be equal under both tax regimes is Rs 1,12,500. This means that a senior citizen earning Rs 7.5 lakh needs to claim a total of Rs 1,12,500 in deductions/exemptions from income (before tax) in the existing tax regime in order for the tax payable by him/her to be the same in both existing and proposed new tax regime. If the total deductions/exemptions that the person can claim in the existing regime is more than this amount (Rs 1,12,500) then the tax payable would be less in the existing regime. Alternatively, if the total deductions claimed by him/her are less than Rs 1,12,500 then his/her tax payable would be less in the new tax regime.

A senior with Rs 10 lakh income will break even if he/she claims a total of Rs 1.75 lakh in deductions/exemptions. If total deductions/exemptions claimed are below this (Rs 1.75 lakh) then the new tax regime would lead to lower tax payable and if the total deductions/exemption claimed are higher than this (Rs 1.75 lakh) then the existing tax regime would mean a lower tax pay-out for him/her.

we assume that the composition of the person's gross income allows him/her to claim the level of deductions/exemptions assumed. For example, if a person's income comprises pension and income from other sources then he/she will be able to claim standard deduction of a maximum Rs 50,000 and deductions upto Rs 1.5 lakh under section 80C (by investing in specified avenues) and deductions under section 80TTB (maximum Rs 50,000 from interest income from banks, post offices). We assume that as a person's income level increases he/she would be able to claim these and other deductions to the maximum amount allowed. A senior can claim several other deductions including for medical premium/bills under section 80D up to Rs 50,000.