The Income Tax Department has unveiled a helpful new guide for retired individuals. This brochure simplifies complex tax rules, highlighting key benefits and exemptions on various retirement incomes. Here are the top 10 points every retired employee should know to manage their finances smarter.
The tax-free income limit differs based on age and chosen tax regime. Under the old regime, senior citizens (60-80) get a ₹3 lakh exemption, and super senior citizens (80+) get a ₹5 lakh exemption. Under the new regime, it's a flat ₹3 lakh for all.
Regular pensions from a former employer are generally taxable under "Salaries" beyond the exemption limit. However, pensions from independent annuity plans are taxed under "Income from Other Sources".
Retired employees receiving a pension can claim a standard deduction of ₹50,000 under the old tax regime. Under the new tax regime, this deduction is ₹50,000 from AY 2024-25, increasing to ₹75,000 from AY 2025-26.
Senior citizens (60+) who are residents in India and do do not have income from "Profits and Gains of Business or Profession" are exempt from paying advance tax if their estimated tax liability is ₹10,000 or more.
Gratuity received on retirement is largely exempt from tax. For government employees, it's fully exempt. For private employees, the exemption is up to specific limits (e.g., ₹20 lakh for those covered by the Payment of Gratuity Act, 1972).
The lump sum received by commuting a pension is also exempt, with the extent of exemption (1/3rd or 1/2 of the commuted value) depending on whether the employee also receives gratuity.
The cash equivalent of earned leave at retirement is exempt, fully for government employees and up to specified limits (currently ₹25 lakh) for others.
Under the old tax regime, retired employees aged 60+ can claim a deduction of up to ₹50,000 for health insurance premiums or medical expenses (if no insurance is paid), provided payment is made through non-cash modes.
Retired employees aged 60+ can claim a higher deduction of up to ₹50,000 on interest income from all types of bank deposits (savings, fixed deposits), post office deposits, or cooperative bank deposits, regardless of the source.
The transfer of a residential house property under a reverse mortgage scheme for senior citizens is explicitly stated as not being taxable as capital gains, and the loan amount received is also not taxable.
Read more on: ITR Filing 2025: Why You Should Wait Till June 15, 2025
The Income Tax Department's brochure provides a comprehensive guide for retired employees to navigate their tax obligations and benefits effectively. This information empowers retirees to make informed decisions and ensure compliance with tax laws, optimising their post-retirement finances.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: May 27, 2025, 2:22 PM IST
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