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I am 65 years old. My income in financial year 2021-22 was 7.49 lakh, including pension amount of 5.32 lakh and interest income of 2.17 lakh. According to my calculation, 3 lakh will be basic exemption, 50,000 will be standard deduction, 1.5 lakh 80C deduction for PPF, 50,000 under 80TTB and 50,000 for mediclaim. Subtracting all the exemption and deduction should bring my net taxable income to 1.49 lakh,  and so I am not liable to pay any income tax. However, as per my income tax return filing, the total income is 4.49 lakh. Adjusted total income under alternative minimum tax where applicable is 4.49 lakh. I am unable to understand this. 

Will I be taxed for an increase in income for 51,000?

_-Name withheld on request

 

Based on the given facts, we understand that you are a resident senior citizen (i.e. more than 60 years but less than 80 years of age) and have opted for old tax regime [i.e. not opted for the lower tax rates as prescribed under Section 115BAC of the Income-Tax Act, 1961 (‘the Act’)]. Thus, your computation of total income is as follows:

Your pension income is 5.32 lakh out of which 50,000 will be deducted as standard deduction. This will bring down the taxable pension salary income to 4.82 lakh. Adding interest income of 2.17 lakh to your salary income will make your gross total income 6.98 lakh. Then you have other deductions under Chapter VI-A of the Act which include:

a. Contribution towards PPF- 1.5 lakh, 

b. Contribution towards mediclaim- 50,000, 

c. Interest on bank deposits for senior citizens- 50,000 

All the deductions will add up to 2.5 lakh. Now, your gross income minus all the exemptions applied to you will bring down your net taxable income 4.49 lakh.

Please be advised that as per the provisions of the Act, in case of an individual taxpayer, being a senior citizen, income up to 3,00,000 is not chargeable to tax. Further, where the income does not exceed 5,00,000, there is a rebate up to 12,500 available under Section 87A of the Act (applicable only to resident individuals not opting for lower tax rates), thus resulting in nil tax liability for taxable incomes up to 5,00,000 as is applicable in your case currently.

The amount of 3,00,000 mentioned by you is not an exemption or deduction which would further reduce your total taxable income. It is only the maximum amount which is not chargeable to tax under the provisions of the Act (as mentioned above).

Further, your understanding is correct: if your net taxable income exceeds 5,00,000 i.e., there is an increase of 51,202 in your existing income. 

In such a case, assuming that the amount of existing deductions remains the same, you would be required to pay the income tax liability. Further, the rebate under section 87A which was earlier available (on account of net taxable income up to 5,00,000) will no longer be available.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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