In recent years, expenditure on a pension has emerged as one of the significant components of the Committed Expenditure of the Centre and states. It was higher than the ‘salary and wages’ expenditure of the Centre and three states – including Gujarat – during 2019-20, according to official data
Central government pensioners often find themselves in the tax net over their income from pensions and interest earned from banks. Since many pensioners are unaware of the tax structure and criteria, they end up paying taxes even though the same could have been avoided.
Senior citizens/pensioners can avoid paying tax on income up to Rs 7,99,000. This may include pension income and interest earned from the bank on the deposit. If you are a pensioner/senior citizen, you should know that the Central government provides various rebates to you under the Income Tax Act of 1961
However, Section 87A of the Income Tax Act provides a rebate to taxpayers if their total net taxable income is less than Rs 5 lakh after claiming deductions. Now, if your income is subject to TDS or the tax of Rs 12,500 has been deducted, you can claim a rebate under Section 87A while filing the Income Tax Return (ITD), and you will receive a refund of up to Rs 12,500. Thus, you get back your money, and the net tax paid by you is zero
How to save tax on pension income, bank interest?
So, if you are worried about saving tax on your pension and interest income, rest assured we have got it for you with this calculator. So, suppose your pension income was around Rs 5 lakhs, and interest earned from the banks was Rs 2,49,000. So, your total income was around Rs 7,99,000.
We consider that you have opted for the old tax regime in this calculation. Now, the Income Tax Department allows you to claim a standard deduction of Rs 50,000 on your income (pension), Rs 50,000 under Section 80TTB on the interest earned from banks and Rs 50,000 for mediclaim. Now, your taxable income gets reduced to Rs 6,49,000.
Now, if you invest Rs 1,50,000 in the Public Provide Fund (PPF), which is calculated as part of the Deduction under Chapter VI-A of the Income Tax Act, your net taxable income gets reduced to Rs 4,99,000. This is under Rs 5 lakh rebate limit set by the government
While the government has decided a threshold of Rs 3 lakh for a resident senior citizen, up to which the tax liability is calculated as nil. However, for the net taxable income between Rs 3 lakh and Rs 5 lakh, the existing tax rate is 5%. The maximum tax, in this case, is Rs 12,500
