Deductions and exemptions on pension income

Retired persons drawing monthly pension after retirement can claim various deductions and exemptions under various sections of the Income Tax Act. Let us take a look at all the exemptions and deductions available for the retirees that can help them save on their income tax.

Standard Deduction: Budget 2018 introduced standard deduction of Rs 40,000 in lieu of medical reimbursement of Rs 15,000 and transport allowance of Rs 19,200 per year. Retirees drawing monthly pension can avail the standard deduction of Rs 40,000 and reduce their tax outgo.

Deduction u/s 80C: This section allows deduction up to a maximum of Rs 1.50 lakh on investments made in specified instruments as also specified expenses incurred by the retirees. This section provides substantial tax relief to salaried employees as well as retirees drawing monthly pension.

Deduction u/s 80TTB: The Finance Bill 2018 introduced Section 80TTB whereby retired persons can claim deduction up to Rs 50,000 per year on interest income earned from deposit made in a bank or post office. Hence, retirees can invest their pension income in a bank or post office deposit and save tax on interest income up to Rs 50,000

Deduction u/s 80D: If a pensioner buys a health insurance plan, the premium paid up to Rs 50,000 per year would be eligible for tax exemption. Hence, it would be desirable for the pensioner to buy a senior citizen health insurance plan to avail this tax benefit and also remain protected by the health insurance cover.

Deduction u/s 80DDB: If a pensioner spends pension amount for the treatment of specified diseases of his dependents (spouse, children, parents, siblings), he can claim deduction under this section up to a maximum of Rs 1 lakh or the actual expenses incurred, whichever is less.

 From the above, it is clear that pensioners can save a lot of tax under various sections of the IT Act.