Retirement Tax Benefits: CBDT Issues New Brochure For Senior Citizens, Check How To Maximise Deductions

The Central Board of Direct Taxes (CBDT) has come out with an all-inclusive brochure that lays out a wide range of benefits that retired individuals, both from the public and private sectors, can avail themselves of.

From tax-free retirement payouts to high exemption limits, there are several major tax reliefs highlighted by the CBDT, targeting senior citizens.

Here's all you need to know about the latest CBDT document that can help maximise tax benefits for taxpayers aged 60 years and above.

The CBDT document mentions various benefits for those who are 60 years or older and have retired from service. These can be availed by individual taxpayers who have retired from both the government and the private sector. The new guide could be helpful for retirees who have received lump sum payments to save more on tax outgo.

Senior citizens (aged 60–80): They receive a higher basic exemption limit of Rs 3 lakh. This amount stands at Rs 2.5 lakh for others. 

Super senior citizens (Above 80): Those under this age group benefit from a higher limit of Rs 5 lakh.

Gratuity: This is tax-free for retired employees for up to Rs 20 lakh under Section 10 (10) of the Income Tax Act, 1961. For government servants, this exemption applies to the full amount.

Commuted pension: This is tax-free under certain conditions mentioned under Section 10 (10A). While government employees receive full exemption, private sector individuals have to depend on gratuity. This means that only one-third of the commuted pension is tax-free if they have received gratuity. Otherwise, they get half of the amount exempted.

Provident Fund: Amount received from PPF and Statutory Provident Fund is exempted from tax.

Leave encashment: This is exempted up to certain limits under Section 10 (10AA) for non-government employees. Government servants are fully exempt from this.

Although a monthly pension is taxed as income from salary, pensioners are allowed to get the benefit of a standard deduction of Rs 50,000 under Section 16(ia).

Also, up to Rs 50,000 deduction is available under Section 80D for health insurance premiums that have been paid for self or spouse. 

They even get up to Rs 1 lakh deduction under Section 80DDB to cover medical expenses for treatment of specific diseases, such as cancer, kidney failure, and others.

Interest earned from banks, post office, or others up to Rs 50,000 remains exempt under Section 80TTB.