Relaxation for retired employees under the Income Tax Act of 1961

Form 10 E Annex-I

RELAXATION  FOR RETIREMENT EMPLOYEES under the Income Tax Act of 1961

Higher basic exclusion limit

Exemption from taxes on amounts received by way of gratuities reduced pensions and pension funds

Greater dedication to health insurance premiums

The highest interest deduction limit from Banks and Post Offices

and much more.

Exemption for retired employees under the Income Tax Act of 1961

I retired from service after serving 35 years at the age of 60. I get various retirement benefits like gratuity, switching pension, leave, GPF etc. I have many questions regarding the taxability of these benefits on my hands that I am looking for answers to. 

What is the basic exemption limit for a retired employee like me under the IT Act, 1961? Are pensions received after retirement taxable?

Download Automated Income Tax Form 16 Part A&B for the Financial Year 2021-22[This Excel Utility Can prepare at a time 50 Employees form 16 Part A and B]

For ordinary private taxpayers the basic exemption limit, until they are not required to pay any tax, is currently set at Rs. 2.50 lakh for A.Y. 2020-21. However, for retired employees who are also senior citizens between 60 and 80 years old, the basic exemption limit is set at a number higher than Rs. 3 lakhs. For super seniors over 80 years of age, the exemption limit is set at Rs. 5 lakhs. The pension you receive is taxed under “Salary” Income beyond the exclusion limit.

Relaxation for retired employees under the Income Tax Act of 1961

Will I benefit from the Standard Deduction?

From AY 2023-24, standard discount up to Rs. 50,000 versus salary income earned during the year u/s16 introduced IT Act, 1961. A retired employee over the age of 60 who receives retirement income from his former employer can claim a deduction of up to Rs. 50,000/- towards this salary income.

Am I exempt from paying fees upfront?

Everyone whose estimated tax liability for the year is Rs 10,000 or more is subject to prepaid taxes. However, retired workers over the age of 60 are not required to pay prepaid taxes, as long as they do not receive any income under the heading “Profits and benefits from activities or professions”.

Is the gratuity I receive upon retirement tax-exempt?

Yes, gratuities received in retirement are excluded under the following conditions:

(i) Any free death plus any pension benefits received under the Revised Central Government Pension Regulations.  Central Civil Servant Pension Regulation, 1972.

(ii) Any gratuities received under the Gratification Payments Act, 1972 to the extent not exceed the amount calculated under Sections 4 (2) and 4 (3) of the law.

(iii) other gratuities received by an employee upon retirement or termination of employment or received by widows, children or dependents upon death to the extent specified therein.

(Section 10 (10) IT Law, 1961)

Download Automated Income Tax Form 16 Part B for the Financial Year 2021-22[This Excel Utility Can prepare at a time 50 Employees form 16 Part  B]

Is the amount I receive for retirement reimbursement tax-exempt?

Yes, Amounts received on Retirement Compensation are waived with the following conditions:

(i) any pension payments received under the Central Government Civil Retirement Compensation Regulations. or under a similar scheme.

(ii) Any payment in exchange for a pension received under any scheme from another employer to the extent provided for in the Income Tax Act, 1961.

(iii) any pension conversion payments received from a fund pursuant to clause 23AAB, or a Fund established by a LIC on or after 1 August 1966.

(Section 10 (10A) of the IT Act,1961)

Are amounts received as part of a vacation collection exempt from taxes?

Yes, The amount received while on leave is waived with the following conditions:

(i) any payments received by employees of the Central Government. or state government. as the money equivalent of vacation pay in respect of the period of leave earned to your credit upon your retirement (either) in retirement or vice versa.

(ii) any such payments (as provided for in paragraph (i) above) received by employees other than central government employees or civil servants. for a portion of the EL period not exceeding 10 months calculated based on the average wage received by workers in the 10 month period immediately prior to retirement.

(Under Section 10 (10AA)) 

Download Automated Income Tax Form 16 Part A&B for the Financial Year 2021-22[This Excel Utility Can prepare at a time 100 Employees form 16 Part A and B]

Are amounts received from a pension fund exempt from taxes?

Yes, the amount received from the pension fund is exempt from tax (if the Pension Fund Act 1925 applies or the payment comes from another pension fund determined by the central government and notified by it on behalf of the State Gazette). Also accumulated balances payable and payable to employees participating in recognized pension funds to the extent provided for by rule 8 Part A of the 4th Annex.

(Sections 10 (11) and 10 (12) of the IT Act, 1961).

Are amounts received from a pension fund exempt from taxes?

Yes, Amounts received from approved pension funds are tax-exempt under certain conditions.

(Section 10 (13) IT Law, 1961)

What is the deduction limit for health insurance premiums?

From AA 2020-21, the upper limit of deductions of US 80D in respect of payments made for health insurance premiums in respect of retired employees over the age of 60 has been permitted at Rs 50,000/-. Discounts up to Rp. 50,000/- is also eligible for medical expenses incurred for the health of an Elder provided no amount is paid for the health insurance of the person. To claim this deduction, health insurance premiums / medical expenses must be paid in a way other than cash.

What is the deduction limit for medical treatment?

If you have paid any amount during the 2018-19 fiscal year (relevant to the 2019-20 academic year) or after that period for medical treatment of a certain disease or disorder and you are an elderly citizen, you can request a reduction of Rp. 1,000,000/-of your earnings.

Section 80DDB of the IT Act, 1961)

Download Automated Income Tax Form 16 Part A&B for the Financial Year 2021-22[This Excel Utility Can prepare at a time 100 Employees form 16 Part B]

Can you tell me the withholding limit for interest earned by the Bank and Post Office in my case?

Individual taxpayers other than parents are allowed a maximum deduction of Rs. 10,000 u/s 8OTTA for interest income on a savings bank checking account.

However, from 2019-to and 2020 onwards, retired employees over the age of 60 can apply for a reduction of up to Rs. 50.000 u/s 80TTB through interest income earned not only on savings accounts but also interest income earned from bank deposits or deposits at post offices or cooperative banks.

Further, if the interest income earned during the year is less than Rs. 50,000, the paying bank/post office will not deduct any tax from the interest income

Family pension tax – Family pensions are taxed under the heading “income from sources”.

The family pension is paid as a regular monthly income (unlicensed pension) by the employer to the

 worker’s family member if he dies. The family pension is taxed after allowing a deduction of 33.33%

 or Rs. 15,000, whichever is less