Senior Citizen Tax Explained: Income from Bank Interest and Capital Gains
A retired senior citizen recently asked how to calculate tax liability under the new income tax regime. His income sources include ₹2 lakh from bank interest, ₹1.5 lakh in short-term capital gains (STCG), and ₹2.2 lakh in long-term capital gains (LTCG). Here’s how his tax will be computed, assuming gains are from listed equity shares or equity-oriented mutual funds (where securities transaction tax has been paid), making them eligible under Sections 111A (STCG) and 112A (LTCG).
Breakdown of Taxable Income
- Bank Interest: ₹2,00,000
- Short-Term Capital Gains: ₹1,50,000
- Long-Term Capital Gains: ₹2,20,000
Under Section 112A, up to ₹1 lakh of LTCG is exempt. So, ₹1.25 lakh of the LTCG will fall under the exemption slab of ₹3 lakh for senior citizens. That leaves ₹95,000 of taxable LTCG.
Total taxable income becomes:
₹2,00,000 (Interest) + ₹1,50,000 (STCG) + ₹95,000 (LTCG) = ₹4,45,000
Can You Claim Rebate Under Section 87A?
- Section 87A offers a rebate up to ₹25,000 if total income is below ₹7 lakh.
- However, Section 112A restricts this rebate against LTCG tax, so it cannot be used to reduce tax on the ₹95,000 of LTCG.
- While the law doesn’t restrict applying the rebate to STCG, tax authorities tend to disallow this as well. This creates a potential risk of litigation if claimed.
Alternate Tax Computation Strategy
If you do claim the rebate against STCG:
- Set off ₹2 lakh of interest income against the ₹3 lakh basic exemption.
- Use the remaining ₹1 lakh exemption to offset ₹1 lakh of LTCG.
- The entire LTCG and interest income become tax-free, and you pay tax only on STCG of ₹60,000.
- Apply the Section 87A rebate to wipe out tax on STCG.
👉 Effective Tax Liability: Zero
(Note: Tax utility may not allow this rebate claim and may compute tax manually)
Important Notes
- If gains are from sales before 23 July 2024:
- LTCG taxed at 10%
- STCG taxed at 15%
- If gains are from sales on or after 23 July 2024:
- LTCG taxed at 12.5%
- STCG taxed at 20%
📝 Form to File: Use ITR-2
📅 Due Date: 15 September 2025
Conclusion
Senior citizens earning through capital gains and interest should carefully evaluate the tax implications under the new regime. While strategic use of the basic exemption limit and Section 87A can reduce or eliminate tax, some parts of the law remain ambiguous and may result in scrutiny. Consulting a tax advisor is recommended before filing.
