In a scenario where interest rates have fallen significantly, senior citizens have high hopes from Finance Minister Nirmala Sitharaman.
Senior citizens account for around 8%-9% of the population of the country. More than 60 lakh taxpayers fall in the senior citizens category.
On an average, most of these taxpayers have contributed taxes for more than 30 years or so. This is the time to give back to them as a society in whatever small way we can.
Currently, income up to Rs 3 lakh is exempt from tax for senior citizens (60-80 years) and Rs 5 lakh for super senior citizens (>80 years).
Interest income up to Rs. 50,000 per year is exempt from tax. A deduction of Rs 50,000 for health insurance premium is allowed. Rs 1 lakh is exempt on medical expenditure for specific critical illness.
To understand the expectations of senior citizens from Budget 2021, one needs to first understand the nature of their income and expenditure.
Interest (Fixed deposits & Recurring deposits)
Medical (insurance premium & expenses)
Travel and pilgrimage
Food & Clothing
Salaried senior citizens get a lump sum amount on retirement in the form of gratuity, leave encashment, provident fund, etc.
Depending upon the risk appetite of the individual, this money is invested in fixed deposits, mutual funds, share markets etc.
Fixed deposits are most popular because of the security aspect. However, of late, a falling interest rate scenario has reduced its attractiveness.
RBI’s repo rate has halved from over 8% in 2012 to 4% in December 2020. Repo rate is the rate at which the central bank lends money to commercial banks.
So basically, the interest income on FDs has halved during the period.
The basic demand of senior citizens is to reduce their tax burden which leaves more money in their hands and provide relief in these trying times. Inflation has increased to 7% levels eroding the value of their primary income through interest.
Relief can be provided to the senior citizens in the following ways:
1. Make income of senior citizens fully tax free
This is likely to knock off Rs 50,000 crore of income tax collections which is approximately 2% of total budgeted receipts of the government. This is not a big amount. However, COVID-19 has impacted the revenues of the government and it may not be in a position to meet this demand this year.
2. Alternatively, maintain current income tax slabs but increase exemptions and deductions
The exemption limits of Rs 3 lakh for senior and Rs 5 lakh for super senior citizens can be maintained, however, the following measures should be taken:
Increase interest income exemption from current Rs 50,000 per annum to Rs. 1 lakh per annum
Pension income up to Rs 50,000 p.a should be exempt from tax
Dividend income up to Rs. 50,000 p.a. should be exempt from tax
Rental income up to Rs 1 lakh p.a. should be exempt from tax
Limit for 80C for senior and super senior citizens should be increased from Rs 1.5 lakh to Rs 2.5 lakh p.a.
Deduction for health insurance premium should be doubled to Rs 1 lakh as the cost of insurance goes up significantly as one crosses 60 years of age. Medical inflation is at 13-15 per cent in India and rising further in COVID-19.
Health/Medical is one of the highest expenditure items of senior citizens and expenditure up to Rs 5 lakh should be allowed as deduction from income if they are not covered under Aayushman Bharat scheme
Pilgrimage or foreign tour expenditure should be allowed as a deduction for a couple up to Rs 1 lakh per annum in a block of 4 years (similar to Leave Travel Concession)
The implementation of the above would effectively mean that senior citizens earning up to Rs 10-15 lakh will not have to pay any tax.
3. Increase Limit under Senior Citizens Savings Scheme
In order to cover senior citizens from decline in interest rates, SCSS Scheme has been envisaged wherein the current rate of interest is 7.4 percent return on 5-year bank / post office deposits of up to Rs 15 lakh .
This should be increased to Rs 25 lakh per individual, so in effect Rs 50 lakh for an elderly couple from current Rs 30 lakh.
Let’s wait for 1st February and see what the finance minister has in store for senior citizens in the Budget 2021.