Budget 2021: No Major Changes in Income Tax Slabs for Individuals, Only Senior Citizens Exempted from Filing Tax Returns

Nirmala Sitharaman, the Union Finance Minister announced that the senior citizens above 75 years of age with only pension income will now be exempted from filing income tax returns. In her Budget speech last year, FM Nirmala Sitharaman had introduced a new income tax regime under which tax rate were reduced. However, the reduced rates were applicable only for those who would forego their exemptions.

Under section 80TTB, seniors can claim up to Rs. 50,000 interest income received from banks and post offices as a deduction from their income thereby making this type of interest income for senior citizens effectively tax-exempt up to Rs. 50,000.

Earlier, senior citizens were entitled to similar tax-exemption for interest income from bank and post office savings accounts but only up to Rs. 10,000 under section 80TTA. The Rs. 50,000 deduction was the biggest tax relief announced in Budget 2018 for most senior citizens as they earn most of their income through interest from bank FDs and post office schemes. TDS limit for bank fixed deposit interest was also hiked simultaneously for senior citizens.

People who wished to include the exemptions were allowed to stick to the old tax regime. The income tax changes announced last year were seen as an attempt to overhaul the income tax structure for individuals. Announcing the move, Nirmala Sitharaman had said it will ‘lower the income tax’ a salaried individual pays.

However, there was a catch to the new scheme. Under the new income tax regime, which has so far been optional, individuals will not be able to avail of all of the deductions or exemptions that earlier allowed them to lower the amount of their salary that was taxed. Under the old income tax regime incomes between Rs. 5 lakh and Rs. 10 lakh are taxed at 20 percent while all incomes above Rs. 10 lakh are taxed at 30 percent. People are free to either chose the old regime or opt for the new one. The old tax regime will include all rebates and exemptions that an income tax payer can use to reduce their overall tax paid. The new tax regime, however, does not include around 70 of those exemptions. In simple words, what the change meant was that if you choose to be part of the new income tax regime, you will pay lesser income tax but you won't be able to claim around 70 of the exemptions available earlier.