Budget 2018 proposes tax, other benefits for senior citizens: Rs 50,000 interest income exempted

Budget 2018 proposes several tax benefits for the senior citizens. These include: increase in tax exemption limit for interest income from banks and post offices from Rs 10,000 to Rs 50,000 and increase in tax break on health insurance and medical expenditure under sections 80D and 80DDB. Both these would give a big relief to this category of tax payers as most senior citizens derive most of their income from bank FDs and post office schemes.

Relief to Senior Citizens proposed:-

• Exemption of interest income on deposits with banks and post offices to be increased from Rs. 10,000 to Rs. 50,000.
• TDS not required to be deducted under section 194A. Benefit also available for interest from all fixed deposit schemes and recurring deposit schemes.
• Hike in deduction limit for health insurance premium and/ or medical expenditure from Rs. 30,000 to Rs. 50,000 under section 80D.
• Increase in deduction limit for medical expenditure for certain critical illness from Rs. 60,000 (in case of senior citizens) and from Rs. 80,000 (in case of very senior citizens) to Rs. 1 lakh for all senior citizens, under section 80DDB.
• Proposed to extend Pradhan Mantri Vaya Vandana Yojana up to March, 2020. Current investment limit proposed to be increased to Rs. 15 lakh from the existing limit of Rs. 7.5 lakh per senior citizen.

The increase in tax exemption limit for interest income for senior citizens will be a big relief as this category derives most of its income from bank FDs and post office schemes. The increase in tax breaks for insurance and medical expenditure is also beneficial.

Currently, the interest earned on a savings account, whether held with a bank (nationalised or co-operative) or post office, is allowed as deduction for a maximum of up to Rs 10,000 a year under section 80TTA. Section 80TTA of the Income-tax Act was introduced for the first time in the financial year 2013-14.

There had been expectations that the budget would increase the deduction limit under section 80TTA or expand the scope to include interest from bank fixed deposits under its ambit. While many like State Bank of India have decreased the interest rate on their savings accounts to 3.5 percent to 4 percent, there are certain banks that are still offering 5-6 percent interest on their savings accounts, which is approximately in line with the returns generated by liquid mutual funds over a period of one year.