Tax Deduction: Finance Minister Nirmala Sitharaman unveiled significant tax relief initiatives for senior citizens in the Union Budget 2025, which include an increased tax deduction limit on interest income and more flexible withdrawal regulations for certain savings schemes.
An increase in the tax deduction
While presenting the budget in Parliament, Sitharaman announced an increase in the tax deduction limit on interest income for senior citizens from Rs 50,000 to Rs 1 lakh. Additionally, the threshold for Tax Deducted at Source (TDS) on rental income has been raised from Rs 2.40 lakh to Rs 6 lakh annually, thereby facilitating compliance for numerous elderly taxpayers. The proposal also aims to streamline TDS by reducing the number of applicable rates and enhancing the threshold limit for improved clarity and consistency.
For the fiscal year 2024-25, the basic exemption limit for senior citizens remains at Rs 3 lakh per annum under both the old and new tax frameworks. Very senior citizens, defined as those aged 80 and above, benefit from a deduction of Rs 5 lakh within a financial year, applicable solely under the old tax regime. Given the rising inflation, there were heightened expectations that the government would revise these limits. In the previous Union Budget 2024, Finance Minister Nirmala Sitharaman had already simplified the tax filing process for senior citizens aged 75 and older, exempting those who meet specific criteria—such as receiving income exclusively from pensions and interest on savings—from the requirement to file income tax returns.
Sitharaman stated, “Many senior and very senior citizens possess outdated National Savings Scheme accounts. As interest is no longer accrued on these accounts, I propose to exempt withdrawals made from the NSS by individuals on or after August 29, 2024.” Furthermore, the Finance Minister announced that NPS Vatsalya accounts will receive the same tax advantages as standard National Pension System (NPS) accounts, subject to the overall limit. Prior to Budget 2025, senior citizens anticipated additional tax exemptions and adjustments to interest rates on savings schemes. My tax proposals are designed to foster a business-friendly environment, promote voluntary compliance, and alleviate compliance burdens.”