tax on pension income: Central government pensioners often find themselves in the tax net on pension income and interest earned from banks. Since many pensioners are not aware of the tax structure and norms, they end up paying tax even though it could have been avoided. Notably, 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 deposits. If you are a pensioner/senior citizen, you must know that the Central Government provides you various exemptions under the Income Tax Act, 1961.
How to save tax on pension income, bank interest? check calculator
So, if you are worried about saving tax on your pension and interest income, rest assured, we have come up with this calculator for you. So, let’s say your income pension income was around Rs 5 lakh and interest earned from banks was Rs 2,49,000. So, your total income was approximately Rs.7,99,000. In this calculation, we are taking into account that you have opted for the old tax regime. Now, the Income Tax Department allows you to claim a standard deduction of Rs 50,000 on your income (pension), Rs 50,000 on interest earned from banks under section 80TTB and Rs 50,000 for mediclaim. Now your taxable income comes down to Rs.6,49,000.
Now, if you invest Rs 1,50,000 in Public Provident Fund (PPF), which is calculated as part of deduction under Chapter VI-A of the Income Tax Act, your net taxable income will come down to Rs 4, 99,000 becomes Rs. This is under the exemption limit of Rs 5 lakh set by the government.
While the government has fixed a limit of Rs 3 lakh for a resident senior citizen, up to which the tax liability is calculated as nil. However, for 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.
Exemption under section 87A of the Income Tax Act
However, Section 87A of the Income Tax Act provides exemption to taxpayers if their total net taxable income after claiming the deduction is less than Rs 5 lakh. Now, if your income subject to TDS or tax deducted is Rs 12,500, you can claim exemption under section 87A while filing Income Tax Return (ITD), and you will get a refund of up to Rs 12,500. Thus, you get your money back and the net tax paid by you is nil.