Like other categories of taxpayers, senior citizens too must be gearing up to file Income Tax Return (ITR) for the Assessment Year 2025-26 Financial Year 2024-25). The Income Tax Department has notified the necessary ITR forms needed to file tax returns. There are seven ITR forms – Forms 1-7 – that have been notified, with some of them containing necessary changes to align with amendments in tax laws and tax structures.

In this story, we will discuss the various tax benefits available for senior citizens who are availing retirement benefits like commuted pension, gratuity, leave encashment on retirement, provident fund, etc. First, let’s understand who senior citizens are as per the Income Tax Department.

An individual resident who is 60 years or above in age but less than 80 years at any time during the previous year is considered a senior citizen for income tax purposes. A super senior citizen is an individual resident who is 80 years or above, at any time during the previous year.

Now, let’s understand what the Income Tax Department says on all these tax benefits available for senior citizens.

If you are a retired employee aged 60 years or above and you have retirement benefits like gratuity, commuted pension, leave encashment or General Provident Fund — then a question must be coming to your mind: whether all these are taxed or not.

Keeping these questions in mind, we scanned through the FAQs (frequently asked questions) posted on the Income Tax Department’s website. These FAQs explain all the benefits available to retired employees under the income tax laws.

So, let us understand the answers to some of the most common questions in your mind in simple language.

What is your tax exemption limit after the age of 60? And is the pension taxable?

You have two options — Old Regime and New Regime.

In the old regime:

The tax exemption limit for a normal person is Rs 2.5 lakh. But if you are a senior citizen between 60 and 80 years, then this limit becomes Rs 3 lakh. For those above 80 years, this exemption is up to Rs 5 lakh.

In the new regime:

In this, the exemption limit for people of all ages is Rs 3 lakh (for AY 2024-25 and AY 2025-26). There is no separate exemption on the basis of age.

If you are getting pension from your former employer, then it is taxable like ‘salary’. But if you have taken an annuity plan yourself and are getting monthly ‘pension’ from it, then it is taxable under ‘income from other sources’.

Are senior citizens eligible for Standard Deduction?

Under the old tax regime: If you are above 60 years of age and are receiving a pension, you can claim standard deduction up to Rs 50,000.

Under the new regime: From AY 2024-25, standard deduction of Rs 50,000 is also available here. From AY 2025-26, it has been increased to Rs 75,000.

Do senior citizens have to pay advance tax?

If their annual tax liability is Rs 10,000 or more, then advance tax is required. However, if you live in India, are above 60 years of age and do not have any business or professional income, you do not need to pay advance tax.

Tax slabs for senior citizens

For AY 2024-25 and AY 2025-26, you can choose either the old or the new tax regime. In the old regime, the tax slabs for senior citizens aged 60 to 80 years are as follows:

Up to Rs 3 lakh: No tax

Rs 3 lakh to Rs 5 lakh: 5% tax

Rs 5 lakh to Rs 10 lakh: 20% tax

Above Rs 10 lakh: 30% tax

Is gratuity received on retirement tax-free or not?

Yes, gratuity is fully or partially exempt from tax in several cases: If it is being received under the rules of the Central Government, then it is completely tax free. If it is received under the ‘Payment of Gratuity Act, 1972’, then it is tax free within the limit prescribed there. In other cases, partial exemption is available under certain conditions.

Is commuted pension (lump sum amount) taxable or not?

It is also tax free under certain conditions.

If it is received under the government pension scheme – then it is completely tax free.

If it is received under any other scheme of the employer:

If gratuity is also received: then up to 1/3rd is tax free.

If gratuity is not received: then up to 1/2th is tax free.

Amount received from commutation fund run by organizations like LIC is also exempted.

Summing up…

After retirement, there should be peace and financial security in life – not the stress of tax-related complications. These FAQs help you understand the tax status on pension, gratuity and other benefits in a clear manner. With the right information and tax planning, you can make the most of your retirement years.