NEW SIMPLIFIED TAX REGIME AND SENIOR CITIZENS

UNION BUDGET 2020-21 AND
​                      SENIOR CITIZENS 

EFFECTS OF NEW SIMPLIFIED TAX REGIME FOR SENIOR CITIZENS

02.02.2022  : As  there is no proposal  to alter income tax rates and slabs  for  FY 2022-23 also   ,  the observations made   in this article is valid for both FY 2021-22 &  FY  2022-23 

 02.02.2020 :  In the yesterday's budget speech  , Finance Minister Ms Nirmala Sitharaman    announced    a  New and Simplified Personal Income Tax  regime for FY 2020-21   under which   Income tax rates are   lowered and a   simple income tax   structure is unveiled  . The new income tax is optional  . Either you can opt for it  or you may use  the last  year's IT slabs and rebates / deductions  whichever is convenient   . 

Under the new regime  ,  tax calculation is  simple . " Just tell me your income , I will tell your tax  "    as  it allows few exemptions  . It applies to  people of all ages  .  New rates  are lesser than the existing  rate structure  and are as follows  ( The rates   for the year 2019-20   is for senior citizens ) : 

​  . 

Income	IT RATES FOR  ​FY 2019-20	IT RATES UNDER NEW REGIME	DIFFERENCE
UP TO RS 2.5.LAKHS	0 %	0%	NIL
2.5 TO 3.00 LAKHS	0%	5%	-5%
3.00 TO 5.00 LAKHS	5%	5%	NIL
5.00 TO 7.5 LAKHS	20%	10%	10%
7.5  TO 10.00 LAKHS	20%	15%	5%
10.00 TO 12.50 LAKHS	30%	20%	10%
12.5 TO 15 LAKHS	30%	25%	5%
ABOVE 15  LAKHS	30%	30%	NIL

NOTE : If Income is less than Rs 5,00,000  , Rebate of Rs 12,500  can be used in both the regime and hence   there will be NIL Taxation   in both the regimes up to Rs 5.00 lakh income 

 We can see from the above chart   that  there is  savings up to 10 %   in each of the  slabs , if we opt for new  regime   . New regime appears   simple  with lower taxes . But  the new regime comes with a clause  like " Terms & conditions  apply "   in commercial advertisement  . If you  opt for new regime ,  you have to forgo most of the rebates / deductions    you were claiming in the earlier years   .  

New  Updated Article 
            
 TAX PLANNING FOR FY 2021-22 ( AY 2022-23 ) 
Comprehensive   Article on Income tax changes in Rules, Rates , Slabs , Rebates  and Estimation 

CLICK HERE TO READ ​

WHAT SENIOR CITIZENS LOSE / GAIN IN THE NEW IT REGIME ? 

THE PRIVILEGES  SENIOR CITIZENS TO LOSE :  
​

 1.  Pensioners will lose standard deduction of  Rs 50,000 in the new regime  . 
2.  Deduction of  Rs 50,000 under section 80 TTB  on interest income from bank deposits    will  not   be available for senior citizens  .
​3. Health insurance premium paid up to Rs 50,000 available to senior citizens   under section 80 D will not be available  in the new scheme  . 
4.   Senior citizens  having more than Rs 5 lakh total income  have to pay now  for slab between Rs 2.50 lakh to Rs 3.00 lakh   which was not being paid earlier  ( Additional tax  payment of Rs 2,500  )
5. Super Senior citizens  will have   to pay now for slab  between Rs 2.50 lakhs to Rs 5 .lakhs  which was earlier  exempted , if total income exceeds Rs 5 lakhs  . ( Additional tax payment of Rs 12,500  )

There are more than 70   rebates and deductions  which  senior citizens  may have to forgo along with other citizens  . But you may not be using all of them  now . 

THE PRIVILEGES  SENIOR CITIZENS   WILL RETAIN IN THE NEW REGIME  :  

 The  following  tax exemptions available on Retirement benefits will continue to be available  under the new tax regime also  . 

1. Tax free  gratuity up to Rs 20 lakhs 
2.  Leave encashment  on retirement 
a. Government employees - No limit 
b. Others - Rs 3.00 lakhs   
3. Benefits available on VRS  - Maximum of Rs 5 .00 lakhs 
​4. Deductions  available on Commuted Pension . 

THE ADDITIONAL  PRIVILEGES  FOR SENIOR CITIZENS   IN THE NEW REGIME  :

NIL 
except  for the  new tax structure which is lower than the present one 

 HOW MUCH A SENIOR CITIZEN CAN SAVE  IN THE NEW REGIME ? 

In order   to    find   how much  gain  a senior citizen  can have  or how much he / she loses   by opting for new  regime , we have taken    four examples  of senior citizens    who are eligible for  different levels of rebates and deductions   . We will work out  for each category for their different levels of income  . The four categories are . 

1. CATEGORY A : Businessmen and Professionals who are not enjoying any  rebate and deductions  like standard deduction , interest income  , etc  .  Their rebates are NIL  now . 

2. CATEGORY B :Retirees and pensioners  who are enjoying standard  deduction of Rs 50,000 ,  Deduction on bank deposit interest up to Rs 50,000  and    Rebate of Rs 50,000 under 80D  for health insurance premium .  Total Rebates  they are enjoying is Rs 1,50,000 . 

 3. CATEGORY C :Retirees and pensioners  who are enjoying standard  deduction of Rs 50,000 ,  Deduction on bank deposit interest up to Rs 50,000  and    Rebate of Rs 50,000 under 80D  for health insurance premium .   Further   they are  enjoying additional benefits of  Rs 1,50,000  under section 80C  by contributing to  LIC premium etc . Total Rebates  they are enjoying is Rs 3,00,000 . 


 4. CATEGORY D :Retirees and pensioners  who are enjoying standard  deduction of Rs 50,000 ,  Deduction on bank deposit interest up to Rs 50,000  and    Rebate of Rs 50,000 under 80D  for health insurance premium .   Further   they are  enjoying additional benefits of  Rs 1,50,000  under section 80C  by contributing to  LIC premium etc  and additional  deductions for  housing loan etc  up to another Rs 1,50,000 .   Total Rebates  they are enjoying is Rs 4,50,000 .   

Now  let us examine   the tax liability under    both old and new regimes  for each of the categories at different income levels 

  CATEGORY A   ( WITH NIL EXEMPTIONS AND REBATES ) : 

INCOME	TAX UNDER OLD SCHEME	TAX UNDER NEW REGIME	DIFFERENCE
5 LAKHS	NIL	NIL	NIL
6. LAKHS	30,000	22,500	7,500
7 LAKHS	50,000	32,500	17,500
8 LAKHS	70,000	45,000	25,000
9 LAKHS	90,000	60,000	30,000
10 LAKHS	1,10,000	75,000	35,000
11 LAKHS	1,40,000​	95,000	45,000
12 LAKHS	1,70,000	1,15,000	55,000
13 LAKHS	2,00,000	1,37,500	62,500
14 LAKHS	2,30,000	1,62,500	67,500
15 LAKHS	2,60,000	1,87,500	72,500

HEALTH INSURANCE PLANS FOR SENIOR CITIZENS
WITH OR WITHOUT ENTRY AGE RESTRICTION   
TO  READ THE ARTICLE
CLICK HERE 

 CATEGORY B  ( WITH  EXEMPTIONS AND REBATES OF TOTAL RS 1,50,000 ) : 

INCOME	TAX UNDER  OLD SCHEME	TAX UNDER  ​NEW REGIME	DIFFERENCE
RS 5 LAKHS	NIL	NIL	NIL
6 LAKHS ​	NIL	​22,500	-22,500
7 LAKHS ​	​20,000	32,500	-12,500
8 LAKHS ​	40000	45,000	-5,000
9 LAKHS ​	60000	60,000	NIL
10 LAKHS ​	80,000	75,000	5,000
11 LAKHS ​	1,00,000	95,000	5,000
12 LAKHS ​	1,25,000	1,15,000	10,000
13 LAKHS ​	1,55,000	1,37,500	17,500
14 LAKHS ​	1,85,000	1,62,500	22,500
15 LAKHS ​	2,15,000	1,87,500	27,500

CATEGORY C  ( WITH  EXEMPTIONS AND REBATES OF TOTAL RS 3,00,000 )

INCOME	TAX UNDER  ​OLD SCHEME	TAX UNDER ​NEW REGIME	DIFFERENCE
5 LAKHS	NIL	NIL	NIL
6 ​LAKHS	NIL	22,500	-22,500
7 ​LAKHS	NIL	32,500	-32,500
8 ​LAKHS	NIL	45,000	-45,000
​9 LAKHS	30,000	60,000	-30,000
10 ​LAKHS	50,000	75,000	-25,000
11 ​LAKHS	70,000	95,000	-25,000
​12 LAKHS	90,000	1,15,000	-25,000
​13 LAKHS	1,10,000	1,37,500	-27,500
14 ​LAKHS	1,40,000	1,62,500	-22,500
​15 LAKHS	​1,70,000	1,87,500	-17,500

​INVESTMENT  OPTIONS  FOR SENIOR CITIZENS 
CLICK HERE TO READ

   CATEGORY D  ( WITH  EXEMPTIONS AND REBATES OF TOTAL RS 4,50,000 )

INCOME	TAX UNDER ​OLD SCHEME	TAX UNDER ​NEW REGIME	DIFFERENCE
5 LAKHS	NIL	NIL	NIL
6 LAKHS ​	NIL	22,500	-22,500
7 LAKHS ​	NIL	32,500	-32,500
8 LAKHS ​	NIL	45,000	-45,000
9 LAKHS ​	NIL	60,000	-60,000
10 LAKHS ​	20,000	75,000	-55,000
11 LAKHS ​	40,000	95,000	-55,000
12 LAKHS ​	60,000	1,15,000	-55,000
13 LAKHS ​	80,000	1,37,500	-57,500
14 LAKHS ​	1,00,000	1,62,500	-62,500
15 LAKHS ​	1,25,000	1,87,500	-62,500

 GREEN  DENOTES    NEW REGIME IS BENEFICIAL          RED DENOTES  OLD SCHEME IS BENEFICIAL

   NOTES : 
1. Senior citizens with no exemptions at all  now   will  have  tax benefit  up to Rs 72,500   under the new regime compared to old one  . 
2. Pensioners / retirees who are having exemptions of Rs 1, 50,000    will be better off with the old scheme if their total income    does not exceed  Rs 9.00 lakhs   . If they  exceed Rs 9.00 lakhs total income   , they may  benefit up to  Rs 27,500 as their total income  increases   . 

3 . Senior citizens who have exemptions up to Rs 3.00 lakh and above    will not have any benefit   under the new regime whatever may be their income . In fact  , they will lose up to Rs 62,500  under the new regime . 

 CONCLUSION :  The new regime is made simple by removing most of the privileges   senior citizens hitherto enjoying  . Though it is simple , it makes  most  of the retirees / pensioners and other senior citizens   pay higher income tax  and pinches their already taxed pockets  . Most of the senior citizens will say "  Madam  , you have your new regime with you . We are old  people and we will have old scheme  with us which is more comfortable  "  

Silver  lining  of the new simple regime is  it is optional . So senior citizens  can say no to it  and opt for the old . But alas !  Their hopes of  lower taxes dashed .