- Interest income for senior citizens is fully taxable under the New Tax Regime in FY2025-26.
- Section 87A rebate increased to Rs 60,000 for income up to Rs 12 lakh, reducing tax burden significantly.
- Senior Citizens Savings Scheme (SCSS) interest is taxable with no 80C deduction under the new regime.
In a significant development for senior citizens, the New Tax Regime for the financial year 2025-26 introduces revised tax slabs and enhanced rebate limits under Section 87A. These changes are expected to benefit retirees, particularly those who depend on interest income from fixed deposits and government-backed schemes like the Senior Citizens Savings Scheme (SCSS).
Taxability of Interest Income for Senior Citizens under New Tax Regime
Interest income, counted as “Income from other sources” under the Income-tax Act, 1961, is fully taxable in the new tax regime. But the government has raised the Section 87A rebate limit, letting senior citizens with total income up to Rs 12 lakh get a rebate of up to Rs 60,000, which could reduce or even wipe out tax on moderate earnings.
Key Tax Slabs and Rebate Limits Applicable in FY2025-26
For FY2025-26, income tax slabs under the new tax regime are:
| Income Range (Rs) | Tax Rate |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
The higher Section 87A rebate of Rs 60,000 applies if your total income does not go beyond Rs 12 lakh, making it easier for many senior citizens to lower or remove tax payable on their interest earnings.
Impact of New Tax Regime on Senior Citizens Relying on Interest Income
Many senior citizens rely heavily on interest income from bank fixed deposits and SCSS when pension income is not available. The new tax regime fully taxes this interest income. Still, the higher rebate offers some welcome relief, especially for incomes up to Rs 12 lakh.
Senior Citizens Savings Scheme (SCSS) and Tax Implications
Interest earned from the Senior Citizens Savings Scheme (SCSS) is fully taxable under the new regime. Unlike before, you can’t claim the 80C deduction on your SCSS investment or the 80TTB deduction on interest income. So, your SCSS interest is added to other income sources and taxed according to the new slabs.
Key Benefits Exclusive to Senior Citizens under Old Tax Regime
| Benefit | Description |
|---|---|
| Higher Exemption Limits | Rs 3 lakh for ages 60-79 years, Rs 5 lakh for 80+ years |
| 80TTB Deduction | Rs 50,000 on interest income |
| Standard Deduction | Rs 50,000 on pension or salary income |
| Medical Insurance Deduction (80D) | Up to Rs 50,000 |
| Specified Disease Deduction (80DDB) | Up to Rs 1,00,000 |
| No Advance Tax | If no business or professional income |
| ITR Exemption (75+ age) | If only pension + interest from same bank and 194P declaration filed |
| Reverse Mortgage Benefits | No capital gains tax on monthly payouts |
Choosing Between New vs Old Tax Regimes: What Senior Citizens Need to Know
Deciding which tax regime fits you depends on your income sources and deductions. The new regime makes filing simpler and offers a higher rebate limit but removes several deductions like 80C, 80D, and 80TTB that many senior taxpayers benefit from. If you can use these deductions under the old regime, you might lower your taxable income more.
For example: A senior citizen earning Rs 10.2 lakh only from interest income would pay zero tax under the new tax regime after rebate. Under the old regime, if they have pension income or investments eligible for deductions, tax might be even lower or also zero. Always do the math or talk to a tax expert to get the best tax savings.
Keep yourself updated on New Tax Regime rules and check your benefits each year to make the smartest tax choices. For trusted info, visit the official Income Tax Department website at www.incometax.gov.in.