8 Key Points Explaining Income Tax Benefits for Senior Citizens on Interest Income

Tax Benefits

8 Key Points Explaining Income Tax Benefits for Senior Citizens on Interest Income

The Income Tax Act’s Section 80TTB describes the tax advantages available to older persons for interest income from deposits. The new Section 80TTB provision is one of the incentives expressly aimed at older citizens that were added in the 2018 Finance Budget.

Tax Benefits

Under Section 80TTB, a person who is 60 years of age or older and an Indian resident for tax purposes can deduct ₹50,000 for interest earned on deposits made at the Post Office, Bank, and Cooperative Society during a year. Interest accrued on both fixed and savings accounts is subject to this deduction.

Interest on deposits made to these companies in whatever form, including savings bank interest, fixed deposit interest, and recurring deposit interest, is covered by this deduction. Above the total ₹50,000, interest earned on deposits made under the Senior Citizen Savings Scheme is also eligible for deduction.

Difference between Section 80TTA, and Section 80 TTB

Although they differ, Sections 80TTA and 80TTB both allow deductions for interest income. For savings accounts kept in banks, co-ops, or post offices, people under 60 years of age and Hindu Undivided Families (HUFs) are eligible for interest deductions up to ₹10,000 under Section 80TTA.

It’s crucial to remember that senior folks are not eligible for the advantages of Section 80TTA.

Eight Essential Points to Consider

1) A senior citizen is defined as a resident individual aged 60 years or above.

2) The interest pertains to deposits in banks, whether they are savings or fixed.

3) This includes interest from deposits in cooperative societies involved in banking activities, such as cooperative land mortgage banks or cooperative land development banks.

4) Interest earned on post office deposits is also covered.

5) Banks are not authorized to deduct any Tax at Source (TDS) from interest payments to senior citizens on deposits up to ₹50,000.

Read More: Understanding Section 43B(h) of the Income Tax Act in Ensuring Prompt Payments to MSMEs

6) With the exemption of interest up to ₹50,000 under Section 80TTB, resident senior citizens have a higher limit of ₹50,000 for TDS on interest under Section 194A.

7) Any interest income exceeding ₹50,000 is subject to taxation based on the applicable slab rate for senior citizens.

8) Interest income derived from company fixed deposits, bonds, or Non-Convertible Debentures (NCDs) does not qualify for relief under Section 80TTB.

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Strategies for Salaried Individuals to Save on Taxes in the Financial Year 2023-24

Taxes

Strategies for Salaried Individuals to Save on Taxes in the Financial Year 2023-24

The Income-tax Act of 1961 offers a number of deductions and exclusions that people can use to reduce their tax liability on income received in Fiscal Years 2023–2024.

Taxes

The Income-tax Act of 1961 offers a number of deductions and exclusions that people can use to reduce their tax liability on income received in Fiscal Years 2023–2024. However, the amount of tax that a person can save will vary depending on two things: The tax system they select and the costs or investments they incur in order to qualify for the aforementioned deductions. It is significant to note that the interim budget for 2024 does not alter the income tax slabs for the fiscal year 2024–2025 (April 1, 2024–March 31, 2025).

As of this fiscal year, the default tax regime is the new one. A salaried person must specifically choose the previous tax system. If a person chooses to continue paying taxes under the previous system, they will still be able to take advantage of tax exemptions like home rent allowance (HRA), leave travel concession (LTC), and deductions under sections 80C (up to Rs 1.5 lakh in a fiscal year), 80D (deduction for paid medical policy premiums), 80E (interest paid on student loans), etc. Remember that under the new tax law, there are only two deductions permitted.

Deductions and exemptions for eligible investments or expenses

Section 80C

Individuals may claim up to Rs 1.5 lakh in deductions under section 80C per financial year. Only taxpayers who choose to use the previous tax system are eligible to claim the 80C tax advantage.

The Public Provident Fund, Employees’ Provident Fund (EPF), Equity-Linked Savings Scheme (ELSS), Tax-saving Fixed Deposits (FD), National Savings Certificate (NSC), and many more investment options are eligible under Section 80C. Under section 80C, some expenses may also be deducted as long as they are truly incurred. Among them are things like life insurance premiums, kids’ education expenses, principal repayment on home loans, etc.

 

Section 80 CCD(1B)

Individuals may deduct up to Rs 50,000 for investments made in the National Pension System (NPS), which is an additional deduction above the Section 80C deduction.

The deduction allowed under section 80CCD(1B) of up to Rs 50,000 exceeds the Rs 1.5 lakh section 80C threshold limit. Therefore, under the previous tax system, a person may deduct up to Rs 2 lakh in taxes by adding both of these deductions.

 

Section 80 CCD (2)

A person may only claim a deduction under section 80 CCD (2) if their employer, whether public or private, makes contributions to their NPS account. An employee in the private sector may deduct no more than 10% of their compensation, which is calculated as base pay plus dearness allowance (DA). Under section 80 CCD, government employees may withhold up to 14% of their pay (2).

An additional requirement is that an employer’s contribution to an NPS, EPF, or superannuation fund may only be deducted up to Rs 7.5 lakh within a fiscal year. The excess payment, along with any interest or dividends made on it, will be taxable in the employee’s hands as perquisites if the employer’s total contribution exceeds Rs 7.5 Lakh in a given fiscal year.

There is a deduction for 80CCD (2) under both the old and new tax systems.

Taxes

Section 80D

Only those who have purchased health insurance policies for themselves, their spouses, their dependent children, or their parents are eligible for a deduction under section 80D. Moreover, it is only accessible under the previous tax structure.

Under section 80D, individuals under 60 years of age can deduct up to Rs 25,000 for health insurance premiums paid for themselves, their spouses, and their dependant children. Additionally, a further sum of Rs 25,000 can be claimed as a section 80D tax deduction if the individual is paying the health insurance premium for parents who are under 60 years old.

An individual may claim up to Rs 50,000 in additional tax deduction under section 80D if they are paying the health insurance premium for senior citizen parents (those 60 years of age or over), as opposed to the Rs 25,000 additional deduction. Additionally, a person may deduct Rs 5,000 from their taxes for whatever costs they make for preventative medical examinations. However, this sum (Rs 5,000) is only allowed up to the entire Rs 25,000/Rs 50,000 section 80D limit.

 

Deduction for professional tax

In some states, professional tax is mandatory for all individuals, regardless of their income type. “If professional tax is paid by the employer on behalf of its employee, then it is first included in the salary of the employee in their Form 16 as a perquisite and then the same amount is allowed as deduction without any limit.” “For salaried individuals, professional tax is deducted by their employer and deposited with the appropriate state government.”

Only under the previous tax regime is it possible to deduct professional tax payments: Section 16(iii) permits salaried individuals to do so, if they so want, in order to calculate their taxable compensation. However, those who choose to pay professional tax under Section 115BAC’s new, reduced tax regime are not eligible to claim the aforementioned deduction.

 

Leave Travel Allowance (LTA)

LTA is a reimbursement that the worker is eligible to receive for himself and his dependents, including his spouse, kids, parents, siblings, and sisters, who travel to any location in India while on leave. The guidelines for determining the amount that can be claimed as an LTA deduction are outlined in the Income-tax Act.

The employee’s domestic travel expenses (airfare, train or bus fare) are the only ones covered by the LTA exemption. LTA does not cover other costs such internal travel, lodging, meals, sightseeing, or transportation within the destination.

Only individuals who choose to use the previous tax system are eligible for the LTA tax exemption.

 

House Rent Allowance (HRA)

An individual may be eligible for tax exemption on HRA if they are under the old tax regime, are paying rent for their housing, and get an HRA component of their wage. Having said that, after a certain computation and up to Rs 60,000 in annual rent, a person who pays rent but does not receive HRA as part of their wage may also be eligible to claim tax exemption on HRA.

 

Deduction for Encashment of Leaves

10 (10AA) states that “government employees have no monetary limit for claiming deduction of leave encashment.” Leave encashment is defined as the encashment of unused earned leave at the time of retirement. However, there is a formula that non-government sector workers must adhere to in order to determine the precise amount of leave encashment that can be deducted.

This tax deduction on leave encashment is only available for those under the old tax regime.

Deduction for home loan interest 

Under section 24(b), a person may deduct interest paid on a home loan if they are living in the residence for which they have obtained a home loan. In a given financial year, the maximum amount that can be deducted for home loan interest is Rs 2 lakh. The interest component of the home loan is deductible under section 24(b), and a deduction of up to Rs 1.5 lakh for the principal component is possible under section 80C.

In restricted circumstances, individuals who choose to use both the old and new tax regimes may be eligible for this deduction.

Section 80E

An individual may deduct the interest portion of an educational loan under section 80E. The maximum amount of a deduction under section 80E is unlimited, and there is no requirement for an individual to provide any supporting documentation in order to make such a claim. There is an eight-year maximum for this deduction.

The 80E tax deduction is only available to those who choose to use the previous tax system.

The financing for his higher education or the higher education of his relative should have been obtained from any financial institution or from any philanthropic organization that has been recognized.

Read More: 3 Key Income Tax Modifications Introduced in the Interim Budget of 2024

Section 80 EEB

An individual is eligible to deduct interest on an electric car loan up to Rs 1.5 lakh each financial year. But the loan needs to be approved sometime between April 1, 2019, and March 31, 2023.

Standard deduction

Both the previous and new income tax regimes allow salaried individuals to deduct a standard amount of Rs 50,000.

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Exploring Key Insurance Options for Income Tax Savings in the Old Tax Regime

Insurance Options

Exploring Key Insurance Options for Income Tax Savings in the Old Tax Regime

Insurance Options

The majority of Indians, including the younger ones, reportedly prefer the previous tax system. Although the market offers a variety of investment schemes, insurance products—which are sometimes disregarded in the discussion of tax savings—also fulfill this function. A few of the alternatives are shown here.

Term life insurance

The Income Tax Act of 1961’s Section 80C allows taxpayers to claim an annual maximum exemption of ₹1.5 lakh. One of the choices under this is term life insurance.

Term plans are eligible for tax rebates since they offer fixed premiums for the duration of the coverage. Dependents receive the total sum assured tax-free. In order to ensure compliance with the requirements, it is important to record the premium restrictions based on the acquisition date.

Unit-linked insurance plan (ULIP)

ULIPs, which are becoming more and more well-liked, offer a special combination of investment and insurance with a minimum five-year lock-in period. The distribution of premiums is made up of investments in the stock market and life insurance.

Sections 80C and 10(10D) of the Income Tax Act offer potential tax savings, and the fund value is fully tax-free upon policy withdrawal or five-year maturity.

Insurance Options

Child plans

Child plans are a desirable choice for individuals who want to maximize their Section 80C savings while providing for their child’s future.

These plans offer returns and build a sizable corpus. They come in a variety of forms. Making the switch from ULIP-based plans to safer funds can improve the corpus even more and provide a more all-encompassing method of long-term financial planning.

 

Read More: Five Lesser-Known Approaches to Trim Your Tax Liability

Health insurance premiums (Section 80D)

Purchasing health insurance offers tax advantages under Section 80D in addition to ensuring complete coverage. For oneself, spouse, dependent children, or parents, the maximum deduction is ₹25,000.

The cap rises to ₹50,000 for households with older citizens (60 years of age and up), maximizing tax benefits while putting health insurance first.

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