Govt may tax-free pension income up to ₹5 lakh per year
NEW DELHI, NOVEMBER 29: The Union Budget 2018-19 could give a higher tax exemption to income from pension.
At present, the basic exemption limit for individual taxpayers from income tax is set at ₹2.5 lakh, while for senior citizens it is ₹3 lakh and for very senior citizens over 80 years of age, the threshold is ₹5 lakh.
However, with the gradual reduction in rates of many small saving schemes such as the Public Provident Fund and the National Savings Certificate as well as fixed deposits inching down to less than 8 per cent, the income of many senior citizens who had invested in these instruments has been impacted.
The only small saving product that caters to senior citizens — the five-year Senior Citizens Savings Scheme — has an 8.3 per cent interest rate.
Calls for some reset of the returns or relief to pensioners has been gaining ground for some time.
The issue was recently raised by Congress MP Shashi Tharoor who wrote to Finance Minister Arun Jaitley pointing out to the rising cost of living and suggested that pension income up to ₹5 lakh per year should be made tax-free.
The Finance Ministry has now promised to look into the proposal and has said that since this would require an amendment to the Income Tax Act, 1962, it would be examined during the Budget preparation.
“A number of my constituents who are pensioners had approached me to express their concern about making ends meet…With an election year looming, perhaps the government would be more sympathetic to the concern of voters than they have been so far,” Tharoor told BusinessLine.
Tax experts also agreed and said that given the rising inflation, high healthcare costs and low returns, some relaxation is expected.
‘Merit in proposal’
“There is merit in a proposal for a higher basic exemption for senior citizens but up to a certain threshold to ensure that benefit reaches the needy. Also, the government should allow them to claim deduction for the expenses on their medical treatment given the high healthcare costs,” said Kuldip Kumar, Partner and Leader (Personal Tax), PwC, while noting that expanding tax base is also a challenge for the government at present.
The proposal would, however, have to be examined in the background of tax collections that have been uncertain particularly for the Goods and Services Tax.
The income tax exemption limit was last increased in Budget 2014-15 although some relief was given to individual taxpayers in FY18 Budget too with a marginal re-jig of the tax slabs.