The Union budget this year has a basket of goodies for the country's 75 million senior citizens. There are numerous advantages for people who have retired or are close to it.

While most senior citizens plan in advance for a steady monthly retirement income, keeping in mind the income they would need till the end of their lives, constant changes in taxation structures often rock the boat. Also, more often than not, they pay nearly the same amount of taxes as when they were working.

But this year appears to have changed that. The concessions granted in Budget '03 may not be very helpful to the upper middle income groups but will make a substantial difference in the tax outgoings of the lower and middle income groups.

One major change is the increase in the rebate allowed under section 88B of the Income Tax Act. The rebate of income tax liability to senior citizens -- resident Indians who are retired persons above the age of 65 -- was Rs 15,000 irrespective of the income a person earned. This year, the limit has been raised to Rs 20,000.

Earlier, senior citizens had a tax-free income of Rs 130,000 lakh per annum. With the increase, income upto Rs 153,000 will be tax exempt. "It helps this section retain more income since they will need it for other purposes like medical care," says Deepak Pandit, chartered accountant and partner with Mumbai-based Blue Chip Investments.

The finance minister has also relaxed standard deductions allowed under Section 16(i) to senior citizens. Till now, senior citizens earning a pension or superannuation from either government, quasi-government or private companies could avail of a standard deduction of 33.33 per cent of the income or Rs 30,000 (whichever was less) for income levels upto Rs 150,000.

For incomes between Rs 150,000 and Rs 300,000 a standard deduction of Rs 25,000 and for incomes between Rs 300,000 and Rs 500,000, a standard deduction of Rs 20,000 was allowed.

From this financial year, standard deductions of Rs 30,000 or 40 per cent of the income, whichever is less, is allowed to persons having an annual income of upto Rs 500,000 and people with incomes above Rs 500,000 can avail of a Rs 20,000 standard deduction on their taxable income.

Put together with the increase in rebate, now income upto Rs 183,000 in the hands of a senior citizen is tax exempt.

"This measure allows tax payers a small benefit. But at least the money is in your hands," says a Mumbai-based tax consultant. For example, if a person is earning a pension of Rs 75,000 a year, earlier he got a deduction of Rs 25,000. Now he gets a deduction of Rs 30,000.

However, for someone earning a pension of Rs 100,000 a year, the standard deduction would be Rs 30,000, both earlier and now. So the real benefit only accrues to people in the lower and middle-income categories.

Another advantage is that senior citizens can now submit form 15H. This is a self-declaration form for not deducting tax at source from the interest income earned from bank deposits, securities, units and other such sources.

Prior to the budget, under the Income Tax Act, if the annual interest income was Rs 50,000 or more, form 15H could not be submitted. The process was cumbersome for retired people since they had to first file their investment plan, then file returns and await a refund.

However, presently, if the tax on a senior person's estimated annual income -- for the previous year, after the Section 88B rebate and standard deduction is accounted for -- amounts to nil, the form (15H) can be submitted to declare that the person's interest income is non-taxable.

"With the amendment, the processes are much simpler for our senior citizens, who will no longer have to run from pillar to post to avoid tax deduction at source," says Pandit.

There is also the introduction of the Varishta Pension Bima Yojana, a product by the Life Insurance Corporation of India, which according to tax consultants takes us closer to a social security plan. The Yojana, for pensioners above the age of 55, is an annuity policy where a person can invest a minimum of Rs 33,000 upto Rs 260,000 in order to draw a monthly pension.

The pension earned will be tax exempt with an assured return in the range of 9 per cent. "Currently, there is no similar assured return product that offers such returns," says a Mumbai-based tax consultant. Even LIC's existing product for senior citizens -- Jeevan Akshaya -- yields returns in the range of 7 per cent per annum.

"The Yojana will be very helpful since the investible amount is not large and people can afford to put in their surplus into the scheme. After the person dies, the money will be given to the nominee," says Pandit. To ensure that the returns are assured, the government will pay LIC for the shortfall.

With these changes, here is an example to calculate the total tax savings. Assume that A is a retired person above the age of 65 and is eligible for pension of Rs 100,000 annually.

With the benefits under the rebate, standard deduction allowed and the existing benefit under section 80L (which allows a deduction of Rs 15,000 against income earned from government securities -- for which form 15H can be submitted), A will have Rs 198,000 in his hand as non-taxable income. An amount that A can choose to re-invest in say the post office monthly income scheme, Varishta Pension Bima Yojana, relief bonds or bank deposits or use as required.

No wonder, this year has brought smiles back on the faces of the elderly.

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