The Hindu Business Line : The unfair bracketing of the old

What will be the effect on the tax payable by the senior citizens who have pension income and interest income including interest on government securities?

Up to assessment year 2005-06 there is no separate slab for senior citizens.

However, they are eligible for tax rebate under Section 88 B up to Rs 20,000 without making any investment.

Further, they will be also eligible for deduction under Section 80 L on their interest income up to Rs 12,000 (in addition, Rs 3,000 can be claimed for interest on government securities).

They will be also eligible for standard deduction up to Rs 30,000 under Section 16 in respect of their pension amount.

Effectively, senior citizens having a pension and an interest income need not pay tax up to Rs 1,95,333 (up to Rs 1,98,333 if they also get interest on government securities).

Also they can invest in specified investments and claim rebate under Section 88.

In the Budget, the Finance Minister has proposed the following tax slabs for senior citizens:

Up to Rs 1,50,000 — Nil;

Rs 1,50,001 to 2,50,000 — 20 per cent;

Above Rs 2,50,000 — 30 per cent.

He also proposes to abolish rebates under Section 88B, standard deduction u/s 16 and deduction u/s 80 L.

Further, instead of rebate u/s 88, deduction u/s 80 C has been restored.

(Section 80 C is a deduction available from the gross total income in respect of investments, which are eligible for tax rebate u/s 88 up to assessment year 2005-06)

The effect on the tax liability in the hands of senior citizens whose income consists of pension and interest income at various levels of taxable income are given in the table.

The education cess has been ignored. It has been assumed that no investment has been made that which will qualify for rebate or deduction u/s 88 or 80C as the case may be.

However, if senior citizens make investments in PPF or NSC what they may gain as deduction u/s 80 C will be more beneficial than rebate u/s 88.

(The author is a Chennai-based chartered accountant.)

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