Which tax regime should senior citizens opt for post-budget 2023? Thus, a senior citizen pensioner may benefit under the revised new tax regime if they are unable to claim maximum deductions and exemptions for income tax outgo to remain the same in both tax regimes
The revised new income tax slabs proposed in Budget 2023 will require senior citizens (aged 60 years and above) and super senior citizens (aged 80 years and above) to rework their income tax calculations in both tax regimes. This is because the basic exemption limit has become the same i.e., Rs 3 lakh in both tax regimes.The revised new tax regime has introduced a standard deduction of Rs 50,000 for pensioners as well including family pensioners. Thus, a senior citizen pensioner may benefit under the revised new tax regime if they are unable to claim maximum deductions and exemptions for income tax outgo to remain the same in both tax regimes.
CASE A: Pensioner eligible for standard deduction
Gross income
Maximum deductions (In Rs.)
Tax payable in old tax regime (In Rs)
Tax payable in revised new tax regime (In Rs.)
Rs 7.5 lakh
2,50,000
0
0
Rs 10 lakh
3,00,000
62,400
62,400
Rs 12.5 lakh
3,50,000
93,600
93,600
Rs 15 lakh
4,00,000
1,45,600
1,45,600
Rs 20 lakh
4,16,668
2,96,400
2,96,400
Source: EY
As per the EY analysis, senior citizen having gross income of Rs 7.5 lakh will no tax liability in both the tax regime. This will happen if he/she is able to claim the maximum deductions and exemptions (including a standard deduction of Rs 50,000) of Rs 2.5 lakh in the old tax regime. By claiming deductions, the net taxable income will come down to Rs 5 lakh. This will make him/her eligible for a rebate of Rs 12,500 under section 87A in the old tax regime.
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If the pensioner has a gross income of Rs 10 lakh and is able to claim deductions exceeding Rs 3 lakh (such as section 80C, 80D, 80TTB etc., and a standard deduction of Rs 50,000), then the old income tax regime maybe beneficial for them.
In case of gross income of Rs 15 lakh, a pensioner is required to claim deductions of more than Rs 3,50,000 for continuing with the old tax regime in FY 2023-24.
CASE B: Senior citizen is not eligible for standard deduction
It is important to note that not every senior citizen is a pensioner. Hence, they may not be able to claim standard deduction benefits in both tax regimes.
Gross income
Maximum deductions (In Rs.)
Tax payable in old tax regime (In Rs)
Tax payable in revised new tax regime (In Rs.)
At 7.5 lakhs
1,50,000
31,200
31,200
At 10 lakhs
2,50,000
62,400
62,400
At 12.5 lakhs
3,00,000
1,04,000
1,04,000
At 15 lakhs
3,66,666
1,56,000
1,56,000
At 15.20 lakhs
3,66,666
1,62,240
1,62,240
At 20 lakhs
3,66,666
3,12,000
3,12,000
Since standard deduction is not available to senior citizen, then he/she is required to claim a deduction of more than Rs 1.5 lakh for the old tax regime to be beneficial for them. Similarly, at income level of Rs 10 lakh, a deduction of more than Rs 2.5 lakh is needed for the old tax regime to be beneficial for such senior citizens.
However, senior citizens with income of Rs 15 lakh and above are required to claim a deduction of more than Rs 3.66 lakh for the old tax regime to be beneficial for senior citizens.
Super senior citizens aged 80 years and above
For super senior citizens aged 80 years and above, the basic exemption limits are different in both tax regimes. Under the old tax regime, a super senior citizen is eligible for a basic income exemption limit of Rs 5 lakh, whereas, in the revised new tax regime the basic income exemption limit has been proposed to Rs 3 lakh.
CASE A: Pensioner (aged 80 years and above) and is eligible for standard deduction in revised new tax regime
Gross income
Maximum deductions (In Rs.)
Tax payable in old tax regime (In Rs)
Tax payable in revised new tax regime (In Rs.)
At 7.5 lakhs
2,50,000
-
-
At 7.75 lakhs
1,37,500
28,600
28,600
At 10 lakhs
2,37,500
54,600
54,600
At 12.5 lakhs
3,00,000
93,600
93,600
At 15 lakhs
3,66,668
1,45,600
1,45,600
At 15.20 lakhs
3,73,332
1,49,760
1,49,760
At 20 lakhs
3,83,334
2,96,400
2,96,400
Source: EY
For super senior citizen, while gross income of Rs 7.5 would require a deduction/ exemption of Rs 2.5 lakh, however, with gross income above Rs 7.5 lakh up to Rs 10.5 lakh, the range of exemption/deductions to be claimed will vary from Rs 75,000 to Rs 2.5 to be at a break even point at different income levels, on account of the increased limit for applicability of Section 87A rebate to Rs 7 lakhs and introduction of standard deduction of Rs 50,000 under the new tax regime.
For pensioner aged 80 years and above having a gross income of Rs 12.5 lakh and is able to claim deductions exceeding Rs 3 lakh (such as section 80C, 80D, 80TTB etc., and a standard deduction of Rs 50,000), then the old income tax regime may be beneficial for them.
CASE B: Super senior citizen not eligible for standard deduction in revised new tax regime
Gross income
Maximum deductions (In Rs.)
Tax payable in old tax regime (In Rs)
Tax payable in revised new tax regime (In Rs.)
At 7.5 lakhs
1,00,000
31,200
31,200
At 7.75 lakhs
1,12,500
33,800
33,800
At 10 lakhs
2,00,000
62,400
62,400
At 12.5 lakhs
2,50,000
1,04,000
1,04,000
At 15 lakhs
3,33,332
1,56,000
1,56,000
At 15.20 lakhs
3,33,332
1,62,240
1,62,240
At 20 lakhs
3,33,334
3,12,000
3,12,000
Source: EY
As standard deduction is not available to super senior citizen, he/she is required to claim maximum deduction of Rs 1 lakh in old tax regime or opt for revised new income tax regime for tax outgo to remain same at an income level of Rs7.5 lakh. However, if the deduction amount is less than Rs 1 lakh, then a revised new income tax regime may be beneficial for them.
For income level of Rs 7.75 lakh, deduction of more than Rs 1,12,500 is needed for the old tax regime to be beneficial for such super senior citizens.
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This story originally appeared on: India Times - Author:Faqs of Insurances
