Senior citizens filing their income tax returns for Assessment Year 2025–26 should take note of the updated rules and forms notified by the Income Tax Department. The Central Board of Direct Taxes (CBDT) has unveiled new guidelines aimed at optimising tax benefits for retired taxpayers. These measures are set to provide significant relief by addressing healthcare costs, interest income, and easing filing procedures for senior citizens.
Retired individuals can now claim a deduction of Rs 50,000 under Section 80D for health insurance premiums or medical expenses, recognising the increased healthcare costs often faced post-retirement. Additionally, there is a provision for a Rs 1 lakh deduction under Section 80DDB for the treatment of specified diseases, which further alleviates financial pressure related to medical care.
Significant changes have also been introduced in terms of interest income. Retirees can avail of a deduction of up to Rs 50,000 under Section 80TTB for interest income earned from banks, post offices, or cooperative banks.
For those whose annual interest income remains below this threshold, no Tax Deducted at Source (TDS) will be applied, simplifying the tax process for many. This move is expected to benefit a substantial portion of retired individuals who rely on interest income as a primary financial resource.
The guidelines also include special provisions under the Reverse Mortgage Scheme, where the amounts received are not treated as capital gains, thus exempting them from taxation. This provides an additional avenue for retired individuals to access funds without increasing their taxable income.
Moreover, senior citizens, those aged 80 and above, can file their tax returns manually if their income exceeds Rs 5 lakh or if a refund is due, adding an element of flexibility to tax filing for this demographic.
From the Assessment Year 2022–23, citizens aged 75 and above with income derived solely from pensions and interest from the same bank are exempt from filing Income Tax Returns (ITR). In these cases, the banks are tasked with computing and deducting the applicable tax, thereby reducing the compliance burden on these individuals. Senior citizens, aged between 60 and 80, enjoy a higher basic exemption limit of Rs 3 lakh, compared to the standard Rs 2.5 lakh, whereas ‘super senior citizens’ benefit from a tax-free slab of up to Rs 5 lakh.
Several retirement payouts continue to be exempt from income tax, contributing to reduced taxable income for retirees. These include gratuity, which is either fully or partially exempt under Section 10(10) depending on the nature of employment, and commuted pension, which remains tax-free under specified conditions as per Section 10(10A).
Other exempt payouts include leave encashment, provident fund, and superannuation amounts from recognised funds, aligning with Sections 10(11), 10(12), and 10(13) respectively. However, uncommuted pensions, which are received monthly, are taxable under the ‘Salaries’ category.
These new guidelines are part of the government’s ongoing efforts to support the older population financially. The measures not only improve the disposable income for retirees but also aim to reduce the administrative hurdles associated with tax compliance.
ITR forms
There are seven ITR forms (Forms 1 to 7), revised in line with recent changes in tax laws. For tax purposes, individuals aged 60 to below 80 are classified as senior citizens, while those 80 and above are considered super senior citizens.
In the old tax regime, the basic exemption limit is Rs 3 lakh for senior citizens and Rs 5 lakh for super senior citizens, compared to Rs 2.5 lakh for others. In the new tax regime, a uniform exemption of Rs 3 lakh applies to all individuals, regardless of age.
Pension received from a former employer is taxed as salary. However, annuity payouts from personal investment plans are taxed under ‘income from other sources’. Standard deduction on pension is Rs 50,000 under both regimes, but rises to Rs 75,000 under the new regime from AY 2025–26.
