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What is the tax obligation for a senior citizen?


My pension income last year was $5,31,910 and the interest from the bank account is $2.16.883. For exemptions under the Income Tax Act, I am eligible for the following deductions: $3 lakh exemption limit for senior citizens, $1.5 lakh to invest in public provident fund (PPF), $50,000 for medical, and $50,000 under Section 80TTB, in addition to the standard deduction of $50,000. Hence my net taxable income is $148,793, which means I don’t need to pay any income tax. But after filing the income tax return, the printout of the confirmation shows the following:

Total income of $4,48,793 and AMT adjusted gross income, if any, is $4,48,793

Although, I got the refund $27,750, I can’t figure out how to calculate the tax. Please help me understand how tax is calculated.

—Name withheld upon request

Based on the limited information provided by you, it is assumed that you qualify as a permanent senior citizen (age 60 or older in the relevant fiscal year) and that you have not selected a new tax regime.

During the year, we assume that you have earned pension income from your employer along with interest on bank deposits. In addition, during the year you made the investments/payments as specified in your query, eligible for a deduction under Chapter VI-A of the Income Tax Act of 1961.

Therefore, based on the data provided by you, we have summarized below how your sample gross income is calculated:

A. Income per capita: $481,910 (is the pension income of $5,31,910 less the standard deduction of $50,000)

B. Income From Other Sources: $216,883 (is the interest arising from a bank account)

C. Gross Gross Income (A + B) is equal to $698,793 (is $plus 481.910 $216,883.)

D. Less: Chapter VI-A deduction: $2.5 thousand won

This includes the section 80C deduction ( $1.5 lakh for PPF), deduction under section 80D ( $50,000 for medical) and 80TTB section deduction ( $50,000 bank interest.)

E. Total Income / Net Taxable Income (C – D) is $448,793 ( $698,793 less $250,000)

As above, the total income/net taxable income is $448,793, also reflected in the calculation of your ITR earnings schedule,

It should be noted that the exemption $The 3 lakh you mention, is not a deduction from your taxable income. It is only the prescribed income threshold (for resident elderly), up to which the tax liability will be zero.

For net taxable income between $3 thousand and $5 lakh applicable tax rate is 5%. However, if the net taxable income is less than $5 lakh (in your case $448,793), discounts are available under section 87A of the Act, up to 100% of the tax or $12,500 whichever is lower. This results in no tax on taxable income up to $5 thousand.

Parizad Sirwalla is the Partner and Head, Global Moving Services, Taxation, KPMG in India.

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