Tax Planning Tips for Pensioners and senior citizens for Assessment Year 2021-2022

If you want to get pension from April 2020, you have to give an anticipatory statement in Treasury or bank in March 2020. Therefore, as a pensioner you need a basic idea about the new finance bill of Feb 2020.

Through this article, I tries to give information about the Finance Act 2020 in a simplified manner to be used by Pensioners and senior citizens in the Assessment year 2021-2022 (F.Y 2020-2021).

Following are the important points you have to Note before Planning Income –Tax for A.Y 2021-2022(F.y 2020-2021)

I. Residential Status.

There is a change in the Basic Condition and additional Condition with respect to Individual and the HUF. Please note the change.

Modification of residency provisions in respect of Individuals and HUF

Change in the Basic Condition

It is proposed that-

(i) the exception provided in clause (b) of Explanation 1 of sub-section (1) to section 6 for visiting India in that year be decreased to 120 days from existing 182 days.

Change in Additional Condition.

Now there is only one additional condition

(ii) an individual or an HUF shall be said to be “not ordinarily resident” in India in a previous year, if the individual or the manager of the HUF has been a non-resident in India in seven out of ten previous years preceding that year. This new condition to replace the existing conditions in clauses (a) and (b) of sub-section (6) of section 6.

(iii) an Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India.

The above change in the additional condition is applicable to senior citizen also. Therefore,please do your tax planning based on that amendment

Tax Planning Tips

II.Incidence of Tax.

Some people raised their concern that people who are working in oil rigs and merchant navy who stay in country for more than 125 days may be affected due to the changes in the Basic Condition. Then Finance Minister clarifies that only income earned in India will be taxed as far as NRIs are concerned.

III.Individual and HUF.

Please Plan your Tax either using Existing Income –Tax Slabs or opt the Option.

Calculate your tax as per existing slabs and option and select the beneficial one .Please understand the following provisions and calculate your income Tax and give the anticipatory income Tax Statement in your Treasury/Bank in March 2020 to get your pension from 2020 April on words.

 New provisions are inserted for tax rates in respect of individual or HUF (section 115BAC of the Act) and resident co-operative societies (section 115 BAD of the Act) with an option to these taxpayers.

From the assessment year 2021-22 (FY 2020-21), individual and HUF tax payers have an option to opt for taxation under the newly inserted section 115BAC of the Act.

(EXISTING SLABS OF INCOME TAX).

The salient features of the rates specified in the said Part III are indicated in the following paragraphs-

B. In the case of every individual, being a resident in India, who is of the age of between 60 to 79 years

Up to Rs. 300,000 Nil
Rs. 300,001 to Rs. 500,000 5 percent
Rs. 500,001 to Rs. 10,00,000 20 percent
Above Rs. 10,00,000 30 percent

In the case of every individual, being a resident in India, who is of the age of above 79 years

Upto  Rs. 500,000 Nil
Rs. 500,001 to Rs. 10,00,000 20 percent
Above Rs. 10,00,000 30 percent

OPTION (Incentives to Individual including senior and super senior citizens and HUF)

(Section 115BAC).

On satisfaction of certain conditions, an individual or HUF shall, from assessment year 2021-22 onwards, have the option to pay tax in respect of the total income at following rates:

Total Income (Rs.) Rate
Upto 2,50,000 Nil
From 2,50,001 to 5,00,000 5 per cent.
From 5,00,001 to 7,50,000 10 per cent.
From 7,50,001 to 10,00,000 15 per cent.
From 10,00,001 to 12,50,000 20 per cent.
From 12,50,001 to 15,00,000 25 per cent.
Above 15,00,000 30 per cent.

Conditions

(i) The option shall be exercised for every previous year where the individual or the HUF has no business income, and in other cases the option once exercised for a previous year shall be valid for that previous year and all subsequent years.

(ii) The option shall become invalid for a previous year or previous years, as the case may be, if the Individual or HUF fails to satisfy the conditions and other provisions of the Act shall apply;

(iii) If taxation is under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions/ deductions:

a. Leave travel concession as contained in clause (5) of section 10;

b. House rent allowance as contained in clause (13A) of section 10;

c. Some of the allowance as contained in clause (14) of section 10;

d. Allowances to MPs/MLAs as contained in clause (17) of section 10;

e. Allowance for income of minor as contained in clause (32) of section 10;

f. Exemption for SEZ unit contained in section 10AA;

g. Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;

h. Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);

i. Additional deprecation under clause (iia) of sub-section (1) of section 32;

j. Deductions under section 32AD, 33AB, 33ABA;

k. Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;

l. Deduction under section 35AD or section 35CCC;

m. Deduction from family pension under clause (iia) of section 57;

n. Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed

iv. Without set off of any loss,-

a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in (a) above; or

b) under the head house property with any other head of income;

v) by claiming the depreciation, if any, under section 32, except clause (iia) of sub-section (1) thereof, determined in such manner as may be prescribed; and

vi) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

Date of Option.

(vii) the concessional rate shall not apply unless option is exercised by the individual or HUF in the form and manner as may be prescribed,-

a. where such individual or HUF has no business income, along with the return of income to be furnished under sub-section (1) of section 139 of the Act; and

b. in any other case, on or before the due date specified under sub-section (1) of section 139 of the Act for furnishing the return of income for any previous year relevant to the assessment year commencing on or after 1st April, 2021 and such option once exercised shall apply to subsequent assessment years;

(viii.) the option can be withdrawn only once where it was exercised by the individual or HUF having business income for a previous year other than the year in which it was exercised and thereafter, the individual or HUF shall never be eligible to exercise option under this section, except where such individual or HUF ceases to have any business income in which case, option under para (vi)(a) above shall be available.

SURCHARGE

The amount of income-tax computed in accordance with the preceding provisions of this Paragraph (including capital gains under section 111A, 112 and 112A) as well as income tax computed under section 115BAC, shall be increased by a surcharge at the rate of,—

A. If the Total Income exceeds Rs. 50 lakhs but does not exceeds Rs. 1 crore@10%

B. If the Total Income exceeds Rs. 1 crore but does not exceeds Rs. 2crore@15%

C. If the Total Income exceeds Rs. 2 crore but doesnot exceeds Rs. 5@ crore 25%

D. If the Total Income exceeds Rs. 5 crore@37%

Provided that in case where the total income includes any income chargeable under section 111A and section 112A of the Act, the rate of surcharge on the amount of Income-tax computed in respect of that part of income shall not exceed fifteen per cent.

Marginal Relief.

Marginal relief is provided in cases of surcharge. It is applicable to all type of assesses.

Health and Education Cess will be@4%

You may use the Income Tax calculator provided in the following website of income tax Department to find out which option is beneficial to you

Taxpayer can calculate the amount of Tax payable approximately for Financial Year 2020-2021 and determine whether the Existing Regime is beneficial or New Regime is beneficial for that taxpayer Link of Income Tax Calculator – https://www.incometaxindiaefiling.gov.in/Tax_Calculator/index.html?lang=eng

II.Extending time limit for sanctioning of loan for affordable housing for availing deduction under section 80EEA of the Act

The existing provisions of section 80EEA of the Act provide for a deduction in respect of interest on loan taken from any financial institution for acquisition of an affordable residential house property. The deduction allowed is up to one lakh fifty thousand rupees and is subject to certain conditions. One of the conditions is that loan has been sanctioned by the financial institution during the period from 1st April, 2019 to 31st March, 2020.

The said deduction is aimed to incentivise first time buyers to invest in residential house property whose stamp duty does not exceed forty-five lakh rupees. In order to continue promoting purchase of affordable housing, the period of sanctioning of loan by the financial institution is proposed to be extended to 31st March, 2021.

This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.

IV .Filing of statement of donation by donee to cross-check claim of donation by donor

.Please understand the following points about Sec 80 G

(iv) an entity already approved under section 80G shall also be required to apply for approval and on doing so, the approval, registration or notification in respect of the entity shall be valid for a period not exceeding five years at one time.

(v) application for approval under section 80G shall be made to Principal Commissioner or Commissioner.

(viii) deduction under section 80G/ 80GGA to a donor shall be allowed only if a statement is furnished by the donee who shall be required to furnish a statement in respect of donations received and in the event of failure to do so, fee and penalty shall be levied.

(ix) similar to section 80G of the Act, deduction of cash donation under section 80GGA shall be restricted to Rs 2,000/- only.

These amendments will take effect from 1st June, 2020.

(ix) similar to section 80G of the Act, deduction of cash donation under section 80GGA shall be restricted to Rs 2,000/- only.

These amendments will take effect from 1st June, 2020

V.The following example will help you to find out which option is beneficial to you.

The following example gives income tax liability of senior citizen (Age  between 60 and 79 years )

Existing  Rs. Option Rs.
I.Pension  20,00,000.00 I. Pension  20,00,000.00
Gross Salary  20,00,000.00 II.Gross Total Income  20,00,000.00
Less: Standard deduction        50,000.00 III.Total Income  20,00,000.00
Net Salary  19,50,000.00 IV.Income Tax will be as follows—
II.Income from House property  Nil Tax up to 250,000 Nil
III Income from Other sources  Nil From 250,000 to 500,000 12500
IV. Gross Total Income  19,50,000.00 From 500,000-750,000 25000
IVA. Deduction under Sec 80C     1,50,000.00 From 750,000-10 Lakhs 37500
V. Total Income  18,00,000.00 From 10 Lakhs -12.5 Lakhs 50000
Income Tax From 12.5 Lakhs to 15 Lakhs 62500
Up to 300,000  Nil Balance 5 Lakhs @ 30% 150000
From 300,000 to 500,000        10,000.00 Total Tax 337500
From 500,000 to 10,00,000     1,00,000.00 Add-4% Cess 13500
From 10 lakhs to 18 Lakhs     2,40,000.00 Total Tax payable 351000
Total     3,50,000.00
Add : 4% Cess        14,000.00
Total Tax     3,64,000.00

From the above example (if deductions are same) we may conclude that the new scheme is more beneficial .But, it depends on your savings and deductions

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4 Comments

  1. CMASIVAKUMAR says:

    Yes Sir,I tis based on your deductions.
    The relevant section is Sec 80TTB
    From the above example (if deductions are same) we may conclude that the new scheme is more beneficial .But, it depends on your savings and deductions

  2. Ashok kumar Makhija says:

    Deduction under section 80 TTA Rs50000 is not taken into account. It is obvious most senior citizens would have interest income. Similarly most senior citizens pay health care premium. It is not taken into account. If these are taken into account, old system would be beneficial particularly for higher income levels

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