How Revised Direct Taxes Code Will Impact Senior Citizens

Finance Minister released the draft of Direct Tax(so that they can save for their retired life) and
Code (DTC) for public discussions in August 2009.not for the retired persons who have to live on
CBDT (Central Board of Direct Taxes) releasedtheir savings of lifetime.
the Revised DTC discussion paper in June 20103. EEE and EET Regime: The modified discussion
for inviting further comments on the modifiedpaper on DTC has proposed to continue with the
proposals in DTC. Direct Taxes Code 2009existing EEE (Exempt-Exempt-Exempt) regime for
expected to become effective from 1 April 2011,specified investment schemes such as GPF
shall replace India's antiquated Income Tax Act,(Government Provident Fund), PPF (Public
1961, which is a major step in the direction ofProvident Fund), RPF (Recognized Provident Fund),
much awaited tax reforms in India and which aimsPension Scheme administered by PFRDA (Pension
to simplify the tax regime radically.Fund Regulatory and Development Agency),
Let's see what are the implications for the SeniorTerm Life Insurance, and Annuity Schemes. In the
Citizens in the original draft and the revisedoriginal draft, the ministry had proposed to adopt
discussion paper on Direct Taxes CodeEET (Exempt-Exempt-Tax) regime. It is a great
1. Income Tax Rates and Income Slab: In therelief for the Senior Citizens, as they will not have
revised discussion paper, finance ministry has notto pay tax on their withdrawals from PF, or
made any changes in the Income Tax Rates andPension.
Income Tax Slabs that were proposed in the4. Retirement Benefits: As per the revised DTC,
original draft. That means there is no change inthe retirement benefits such as gratuity,
the basic exemption limit for the Senior Citizenscommuted pension, voluntary retirement
(resident individual of 65 years or above), which iscompensation and leave encashment will be
240,000 per year. However, with the increase inexempt from tax subject to specified limits.
the overall Tax Slabs (reduced tax rates), the netOriginal Draft DTC had proposed a scheme of
tax liability for Senior Citizens will work out to bedeferment of tax on retirement benefits, that is,
lower than the present rates of income tax.the retirement benefits would not be taxed if it
Proposed Tax Slabs as per DTC are as under:were invested in a Special Retirement Benefit
- Income Exempt from Income Tax - up toAccount, which would be subsequently taxed in
240,000 for senior citizens (resident individual ofthe year of withdrawal. It is worth noting that in
65 years or above), up to 190,000 for women,the earlier draft, the finance ministry had also
and up to 160,000 for all the other assessesproposed that Employer's Contribution to
- Income above the basic exemption limit up toProvident Fund, Superannuation Funds and Pension
1,000,000 - Tax Rate 10%Schemes would be treated as income for the
- Income from 1,000,001 to 2,500,000 - Tax Rateemployees. However, the Revised DTC has done
20%away with this proposal.
- Income above 2,500,000 - Tax Rate 30%Summing Up:
2. Tax Incentives for Savings: In the revised DTC,In the New DTC, be it in the original draft or in
there is no change in the limit of deductions fromthe revised discussion paper, there is nothing very
taxable income for savings in specifiedmuch special for the senior citizens except the
investments. In the original draft, the limit hashigher income tax slabs and the corresponding
been proposed to be revised to 300,000 fromreduced tax rates. If the basic exemption limit of
the present limit of 100,000 (under section 80C).240,000 for senior citizens were revised
However, it should not make much difference tosubstantially, it would have definitely been a great
the Senior Citizens, as the tax incentives forboon to the Senior Citizens.
savings are basically meant for the youngsters