Old age comes with its share of problems. As a person grows older his regular source of income dries up. In such a scenario, the government is expected to lend a helping hand to the elderly. The senior citizens got some respite when the Finance Minister opened his box full of bounties and distributed the gifts in his budget presentation this year.
The basic exemption limit for the senior citizen has been enhanced. The Finance Minister has raised the basic exemption limit for the senior citizens from Rs 1,95,000 to Rs 2,25,000.
The change in the individual tax slabs has also resulted in a reduction in overall tax payable. An elderly man having an income of Rs 5,00,000 per annum can save an amount of Rs 39,655 on account of taxes. With more money at their disposal, they can be assured of spending the golden years of their life respectfully.
The budget proposal has increased the tax exemption to an additional Rs 20,000 in case mediclaim premium has been paid for the senior citizen. This is a welcome step and would encourage their wards to take better care of their health.
With a view to provide an umbrella to the senior citizens against declining interest rates and deteriorating returns, ‘Senior Citizen Savings Scheme’ was introduced in 2004. Though the scheme provides for an interest at the rate of 9 per cent per annum but it did not offer any tax benefits to them.
The Finance Minister has proposed to provide tax benefit of upto Rs 1,00,000 by including the amount deposited in “Senior Citizen Savings Scheme” within the purview of 80C.
The scheme of ‘Reverse Mortgage’ has been made tax friendly. Generally senior citizens spend a majority of their income in buying a house.
Though their home accounts for a major portion of their assets, it does not provide liquidity.
The Finance Minister introduced the concept of reverse mortgage in the last year’s budget. The reverse mortgage allows the senior citizens to mortgage their house. It allows regular fund inflows for the senior citizen without having to lose ownership of property.
The lender recovers the loan and the accumulated interest by selling the property after the death of the borrower or earlier, if the borrower vacates the mortgaged property permanently. Any excess amount collected is remitted to the borrower or his heirs.
One of the hurdles in the success of the scheme was non-clarity on the tax impacts.
The mortgage was covered within the definition of ‘transfer’ for the purposes of capital gains. The Finance Minister provided relief to borrowers by excluding the amount of loan received on the mortgage of property from the definition of income and omitting capital gains levy at the time of reverse mortgage.
So the capital gains would be levied only at the point of alienation of property and not earlier.
With these proposals, the government has shown its concern towards the betterment of the silver brigade.
The author is executive director with PricewaterhouseCoopers