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Changes in the Union Budget 2014-15 and their Effects on Senior Citizens -Tax Planning in India





Income tax slabs for the financial year 2013-14 for a senior citizen between 60-80 years of age

Annual Income Tax Rate
0- INR 2.5 Lakhs NIL
INR 2.5 Lakhs-INR 5 Lakhs 10%
INR 5 Lakhs - INR 10 Lakhs 20%
INR 10 Lakhs and above 30%

Let us consider Mr Gaurav a 62 year old gentleman earns INR 9 Lakhs working in the quality control department of a garment firm. He makes use of the Section 80 C deductions of INR 1 Lakh and invests INR 1.5 Lakh per annum in the senior citizens saving scheme. This amount is tax deductible only up to INR 1 Lakh and he has to pay taxes on the amount exceeding this when calculating his income taxes under Section 80 C of the income tax act. Mr Gaurav takes up a health insurance policy for himself and gets a deduction of INR 20000 on the premium paid for this policy under Section 80 D of the income tax act as he is a senior citizen. Mr Gaurav has a dependent brother and he claims a deduction of INR 60000 for his treatment under Section 80 DDB of the income tax act by virtue of being a senior citizen.

Table 1

Heads Amount
Gross taxable salary INR 900000 (A)
Less : Amount invested in the senior citizen savings scheme under Section 80 C INR 100000 (B)
Less : Amount paid as premium on the health insurance policy under Section 80 D INR 20000 (C)
Less : Amount claimed as a deduction under Section 80 DDB INR 60000 (D)
Total taxable income INR 720000 (A)–(B+C+D)

Mr Gaurav’s income tax liability is calculated as per the income tax slab he falls under.

Table 2

Income tax slabs changed under the Union Budget 2014-15 -Tax Planning

Income tax slabs for the financial year 2014-15 for an Indian citizen between 60-80 years of age:(A free guide on how to calculate your income tax under the changed tax structure)

Annual Income Tax Rate
0-INR 3 Lakhs NIL
INR 3 Lakhs-INR 5 Lakhs 10%
INR 5 Lakhs-INR 10 Lakhs 20%
INR 10 Lakhs and above 30%

Save tax through your minor children

You can avail a deduction on the tuition fees you pay for your children’s education up to INR 1.5 Lakhs for a maximum of 2 children under Section 80 C of the income tax act. You can take up a child life endowment policy or even invest in a child ulip plan if you have a minor child and avail a deduction of up to INR 1.5 Lakhs under Section 80 C. You can gift your minor child cash, as gifts to children are tax free. But if you invest this money, the income (earnings) from this investment will be added to the parent earning the higher income and taxed as per the respective tax bracket. (Clubbing provisions). However if you invest in a tax free instrument such as an ELSS or a PPF then the interest earned or any income/gain from these instruments is not added to your income (or the parent earning the higher income) and taxed.(There is no clubbing of income). If you invest in a PPF in the name of your minor child, then the money you invest in a PPF in your name and the PPF in your minor child’s name together should not exceed INR 1.5 Lakhs per annum.

Save tax through your adult children

Your child crosses the landmark of 18 years and is now a major. You can gift your adult child money, as gifts to your children are not taxed. After your child crosses 18 years (Is an adult) clubbing provisions no longer apply. Your child enjoys all tax deductions (Section 80 C and other Chapter V1 A deductions) and exemptions just as any adult. If you have any investments you can transfer it to your adult child’s name (child who is 18 years) and any earnings from this investment will not be taxed (added to your taxable salary). If your adult child is earning (say your son is 25 years and working) then this income (earnings from the gifted investment) is added to his taxable salary and he pays tax on this amount. This benefits you if he is in a lower tax slab. When your child attains the age of 18 years the PPF you invested when he/she was a minor is now solely in the adult child’s name. You and your adult child can avail a deduction under Section 80 C up to INR 1.5 Lakhs separately on the money invested in the PPF.

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