How is a senior’s income taxed?

I am 65 years old. My income for fiscal year 2021-22 was 7.49 lakh including pension amount 5.32 lakh and interest income of 2.17 million. According to my calculation, 3 lakh will be the basic exemption, 50,000 will be a standard deduction, 1.5 lakh 80C deduction for PPF, 50,000 under 80TTB and 50,000 for health insurance. Subtracting all exemptions and deductions should bring my net taxable income to 1.49 lakh, so I don’t have to pay income tax. However, according to my tax return, the total income is 4.49 million. Total income adjusted for alternative minimum tax, if any, is 4.49 million. I am unable to understand this.

Will I be taxed for an increase in income for 51,000?

_-Name masked on request

Based on the facts presented, we understand that you are a resident elderly person (i.e. over 60 but under 80) and have opted for the old tax regime [i.e. not opted for the lower tax rates as prescribed under Section 115BAC of the Income-Tax Act, 1961 (‘the Act’)]. So your calculation of total income is as follows:

Your pension income is 5.32 lakh of which 50,000 will be deducted as a standard deduction. This will reduce taxable pension wage income to 4.82 million. Adding interest income of 2.17 lakh to your salary income will make your total gross income 6.98 lakh. Then you have other deductions under Chapter VI-A of the law, including:

a. Contribution to the PPF- 1.5 million,

b. Contribution to health insurance 50,000,

vs. Interest on bank deposits for the elderly- 50,000

All deductions will total 2.5 million. From now on, your gross income minus all the exemptions applied to you will lower your net taxable income 4.49 million.

Please note that, in accordance with the provisions of the law, in the case of an individual taxpayer, being an elderly person, the income up to 3,00,000 is not taxable. Moreover, when the income does not exceed 5,00,000, there is a refund up to 12,500 available under Section 87A of the Act (applicable only to resident individuals not electing lower tax rates), thus resulting in zero tax liability for taxable income up to 5,00,000 as is currently applicable in your case.

The quantity of 3,00,000 you mentioned is not an exemption or deduction that would further reduce your total taxable income. This is only the maximum amount that is not taxable under the provisions of the law (as mentioned above).

Furthermore, your understanding is correct: if your net taxable income exceeds 5,00,000 i.e. there is an increase of 51,202 into your existing income.

In such a case, assuming the amount of existing deductions remains the same, you would be liable to pay the income tax payable. In addition, the Section 87A rebate that was previously available (based on net taxable income up to 5,00,000) will no longer be available.

Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG India.

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