How Senior Citizens are Taxed: A Complete Guide!

The Income Tax Act of India clearly defines the tax liabilities on different groups of individuals as per their income. It also offers several tax benefits to senior citizens both in the form of tax rates and exemptions. Senior citizens are a part of individual taxpayers which means they also have to choose between the old and new income tax regime while filing annual tax returns. Furthermore, there are also differences between tax slabs for senior citizens and super senior citizens. Here we will learn everything about tax for senior citizens, senior citizen tax exemption, and how to do the tax calculation.

Senior Citizen Tax Slab: Old and New Tax Regime

Until FY 2020-21, all senior citizens have to pay taxes as per the then only existing tax regime. However, with the introduction of Section 115 BAC in the Income Tax Act in the Union Budget 2020, senior citizens got two tax regimes to choose from- Old and New. The old tax regime has different tax rates for individuals under 60 years of age, senior citizens, and super seniors citizens. However, the tax rates in the new tax regime are the same for all groups of individual taxpayers. Let us understand the senior citizen income tax slab in both tax regimes briefly.

Old Tax Regime for Senior Citizens

Senior Citizens Tax Under Old Tax Regime (Individuals Between 60 and 80 Years of Age)

Super Senior Citizens Tax Under Old Tax Regime (Individuals Above 80 Years of Age)

The IT slab for senior citizens also includes surcharge rates for higher incomes. The surcharge rates are as follows:

Apart from the applicable tax rates, seniors are also liable to pay an additional Health and Education cess of 4% on the calculated income tax. Let us understand how to calculate income tax for senior citizens.

Calculation of Income Tax for Senior Citizens

• Let us start with an example where a senior citizen earns Rs 6 lakhs annually. He/she falls under the 20% tax bracket. The income tax liability on him is: 

20% of 6 lakhs = Rs 1.2 lakhs

Now, he/she will also have to pay 4% Health and Education cess of the calculated tax. Therefore, his final tax liability becomes:

4% of 1.2 lakhs + 1.2 lakhs = Rs 1.248 lakhs

• The second example can be taken of a senior citizen who earns Rs 60 lakhs. Now, he/she falls under the 30% tax bracket but will also have to bear a surcharge of 10%. His income tax calculation is as follows:

30% of 60 lakhs = 18 lakhs
Surcharge = 10% of the calculated tax amount

Tax liability = 10% of 18 lakhs + 18 lakhs = 19.8 lakhs

Cess = 4%

Net tax liability = 4% of 19.8 lakhs + 19.8 lakhs = Rs 20.592 lakhs

Similarly we can calculate the income tax liability for super senior citizens by taking super senior citizen tax slab into account. 

New Tax Regime for Senior Citizens

As said, the income tax slab for senior citizens in the new tax regime is also applicable on super senior citizens. Here is the senior citizen tax slab 2020-21, which has been an available option for income tax calculation for senior citizens FY 2021 22 and FY 2022-23.

The new tax regime also levies surcharge in higher income earners as per the following rates:

Also, just like the old tax regime, senior citizens filing ITR as per the new tax regime will be levied an additional Health and Education cess of 4% on the calculated income tax. We can understand this with a quick simple calculation.

Calculation of Income Tax for Senior Citizens

• Let us take our previous example only, where a senior citizen earns Rs 6 lakhs annually. He/she falls under the 10% tax bracket. The income tax liability on him is: 

10% of 6 lakhs = Rs 0.6 lakh

Now, he/she will also have to pay 4% Health and Education cess of the calculated tax. Therefore, his final tax liability becomes:

4% of 0.6 lakh + 0.6 lakh = Rs 0.624 lakh

• The second example is where a senior citizen earns Rs 60 lakhs. He/she falls under the 10% tax bracket but will also have to bear a surcharge of 10%. His income tax calculation is as follows:

10% of 60 lakhs = 6 lakhs
Surcharge = 10% of the calculated tax amount

Tax liability = 10% of 6 lakhs + 6 lakhs = 6.6 lakhs

Cess = 4%

Net tax liability = 4% of 6.6 lakhs + 6.6 lakhs = Rs 6.864 lakhs

Hence, it is perfectly clear that the new tax regime offers much lower tax rates that helps senior citizens to lower their tax liabilities. However, there is a catch.

Senior citizens opting for the new tax regime will have to forgo around 70 exemptions available under the old tax regime. As known to us, exemptions help taxpayers to lower their annual income and subsequently their tax liability. 

Therefore, it is necessary for senior citizens to know the applicable tax rates in both the regimes and the exemptions offered under different sections of the Income Tax Act. Having proper knowledge on taxation will help senior citizens to claim the available tax benefits and file tax returns efficiently to lower their tax liability.