New Delhi: For millions of senior citizens in India, pension is the primary source of regular income after retirement. Many are unsure about how their pension is taxed and what deductions they can claim. Under the Income Tax Act, pension is treated as salary income, which means pensioners are eligible for the standard deduction just like salaried employees. This provision offers direct tax relief and reduces the taxable portion of pension income.
Standard deduction is a flat amount that is automatically subtracted from pension or salary income before tax is calculated. Unlike other tax benefits, it does not require any bills or documents. It is meant to simplify the tax system and provide immediate relief, especially to retirees who may not have other sources of income.
At present, the amount of standard deduction depends on the tax regime chosen by the taxpayer. Under the old tax regime, pensioners can claim a deduction of up to Rs 50,000. Under the new tax regime, the limit is higher at Rs 75,000. Senior citizens and super senior citizens are both eligible for this benefit, provided the pension is received from a former employer.
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If the annual pension is lower than the standard deduction limit, the deduction is restricted to the actual amount of pension received. For instance, a pensioner receiving Rs 40,000 a year under the old regime can only claim a deduction of Rs 40,000, not Rs 50,000. Similarly, if the pension is Rs 60,000 under the new regime, the deduction will be Rs 60,000 instead of Rs 75,000. In such cases, the full pension amount becomes tax-free after applying the deduction.
This tax benefit is especially helpful for retirees with modest pension income, as it ensures that small pensions remain exempt from tax. It also reduces compliance burden because no proof or paperwork is needed to claim the deduction.
It is important to note that this benefit applies only to regular pension income, which is taxed under the head “Salary.” Family pension is treated differently and falls under “Income from Other Sources,” where a separate deduction is available.
With rising inflation and healthcare expenses, many experts believe the standard deduction should be increased further in the coming years. Proposals to raise the limit to Rs 1 lakh or more are often discussed before the Union Budget. While no changes have been announced yet, such reforms could provide additional financial relief to senior citizens.
Overall, the standard deduction plays a key role in lowering tax liability for pensioners and ensuring a more secure retirement by keeping a larger share of their income in their hands.
