Is it justified to tax pension?

 

Gunjan Jain and Gaurav Kumar Singh, both  BA LLB students at DS National Law University, Visakhapatnam have prepared a report titled ‘Is it justified to tax pension and interest on fixed deposits of senior citizens?’ during their internship with Consumers India. The issues raised are important and affect lives of millions of pensioners. On the basis of this study, letters have been sent to the Finance Minister and others. Full text of the letter sent to the Finance Minister, as also some extracts from their study are given below:

August 3, 2013

Dear Mr Finance Minister,

I would like to share with you some of the major findings emanating from the study ‘Is it justified to tax pension and interest on fixed deposits of senior citizens?’ carried out by Gunjan Jain and Gaurav Kumar Singh, both  BA LLB students at DS National Law University, Visakhapatnam during internship with Consumers India:

Ø  Deteriorating health, malnutrition, lack of shelter, fear, depression, senility, isolation, boredom, non-productivity, and financial incapacity are the most common problems faced by senior citizens today.

Ø  While it may not be the panacea to aging-related problems, the value of money cannot be overstated in the post-retirement period. A financially-handicapped senior citizen, afflicted with some degenerative or serious illness, practically feels that he/she has reached the end of the road.

Ø  The income which they derive after retirement is vey less and the imposition of tax not only burdens  them with the responsibility of paying tax on their meager income but also the avoidable botheration of filing tax returns.

Ø  Amongst the various interviews taken by them during the course of this study, I would like to share with you two examples:

·       ‘Being a government employee, as you reach near the age of retirement your woes never stop counting. You have to plan a lot for future. And adding to this tension of ours, government is taxing not only our pension but also interest on our Fixed Deposits.’ Said a senior citizen from Varanasi.

·       ‘Tax on our pension is like adding woe over worry. We all suffer from a hell of a lot of diseases and for this we need money.’ So says a senior citizen from Vishakhapatnam.

Ø  Article 41 of our Constitution provides that the State shall, interalia, make effective provision for old age security.

Ø  The need of the hour is to take effective steps to ensure financial security for them. Dispensing with Income Tax on the pension and Fixed Deposits of senior citizens will be a small step in this direction.

I appeal to you to kindly use your good offices to revamp the present system of taxation of senior citizens and make their life easier by exempting them from the liability of paying income tax and filing returns if they do not have income other than pension and interest on fixed deposits.

With best regards,

Yours truly,

Dr Jayashree Gupta

President, Consumers India

Extracts from the Study

Is it justified to tax pension and interest on fixed deposits of senior citizens?

Problems of the senior citizens

In India, around 2/3rd of the population is below or close to 30, so does talking about old age problems (which exist) sound awkward?

Deteriorating health, malnutrition, lack of shelter, fear, depression, senility, isolation, boredom, non-productivity, and financial incapacity are the most common problems that senior citizens all over the world face today. These problems can be grouped into two categories that relate to the physical and mental health and the financial capacity of the senior citizen.

Physical and mental health

Stability of physical and mental health is a key concern that senior citizens have to contend with as they go through their twilight years. The human body is a system that wears out with long and repetitive use; and quite easily, with neglect and abuse. Aging is a life-cycle stage where the human capacity to think, act, relate, and learn starts to falter and deteriorate. Aging breeds illnesses such as loss of memory, immobility, organ failure, and poor vision. These are critical dysfunctions that could sideline a senior citizen to a lonely and miserable life.

While a clean and discreet lifestyle in his or her prime could reduce the susceptibility of a senior citizen to dreaded post-retirement illnesses, the onset of any dysfunction is one unpredictable happening even if the person might have had robust financial health. The frailty of the human body grows with the aging process regardless of who the person is, a sure-to-come event magnifying the primacy of physical and mental health stability as a fundamental problem of senior citizens.

2. Financial capacity

Possessing sustainable financial capacity before, during, and after the inception of a senior status is both a basic problem and an elusive dream for most people. This financial dilemma is common among senior citizens who are usually relegated to an abject position of economic inactivity. Lack or absence of financial capacity creates a stressful life and invites the entry of problems other than physical and mental health issues. For instance, domestic problems in an extended family system can aggravate the problem of a financially-destitute senior citizen. Should any of the children be wallowing in a similar state of poverty, the senior citizen becomes physically and mentally loaded up with intense and continuing pressure out of being totally helpless to come to the financial rescue a grieving son or daughter.

While it may not be the panacea to aging-related problems, the value of money cannot be overstated in the post-retirement period. A financially-handicapped senior citizen, afflicted with some degenerative or serious illness, is practically on the road to an early death. A financially secure senior citizen with the same illness, however, may have a longer life to live because money can give quick and convenient access to life-giving remedies. Even with state-of-mind dysfunctions like severe depression, boredom, nervous breakdown, and self-pity, financial capacity can buy options to rejuvenate and refresh a financially-capable senior citizen, through travels, elderly recreation, social renewal, and continuing education. A poor senior citizen in the same state of mental degradation cannot afford to do the same; and more so, be back into the mainstream of society.

As can be discerned from the preceding discussions, the severity and importance of both health and financial problems is a function of the milestones the senior citizen had set up preparatory to facing the challenge of post-retirement. These milestones are:

1) Quality: what lifestyle had been lived in the past 2) Quantity: what endowments and financial fortune had been built 3) Relationships: what community of people the senior citizen had moved about and is attached with.

What is then the most important problem that senior citizens face today? Is it health (physical and mental) or financial capacity?

From a practical and realistic standpoint, I consider the inseparable tandem of health and financial capacity as the most important problem that senior citizens have to prepare and plan for. I use the phrase "prepare and plan for" because health and financial capacity becomes a problem only if the senior citizen had, in the past, been unmindful or neglectful of its future importance.

A healthful life is like a running well-oiled machine, with its vital parts continuously maintained so that it can perform normally, or at peak productivity, beyond its anticipated useful life. The onset of sudden serious health problems can be substantially mitigated, if not totally avoided. This holds true if the senior citizen, at the time of his or her prime, had led a clean, discreet, active, family-based, helpful, and interconnected life, a discipline that builds premium on fitness, integrity, peace, humility, fulfillment, and friendship.

Financial hardships can be avoided if the senior citizen, during his or her period of economic activity and utility, had deliberately exercised foresight, focus, continuous learning, perseverance, and simplicity, a discipline that consistently upholds the importance of modest needs, savings, productivity, competence, and delivering superior value to people and organizations. The idea here is to build a sustainable wealth of lifetime resources to address the financial requirements of the person across the twilight zone.

Out of every 10 elderly couples in India, more than 6 are forced by their children to leave their homes. With no place to go and all hopes lost, the elderly have to resort to old age homes, which do not guarantee first class treatment. In India, unlike USA, parents do not leave their children on their own after they turn 18 (of course there are exceptions), but children find it hard to accept the fact that there are times when parents want to feel the love that they once shared with them. There are times when parents just want to relax and want their children to reciprocate their care. Every parent wants to see their child grow and be successful but no parent wants their child to treat them like an unnecessary load on their responsibilities.

Every other day, we see news of parents being beaten up by their children, parents and in laws being forced to do the house hold chores, being made to live in small dungeon like rooms, their property being forcefully taken over by over ambitious children.

There are 81million older people in India-11 lakh in Delhi itself. According to an estimate nearly 40% of senior citizens living with their families are reportedly facing abuse of one kind or another, but only 1 in 6 cases actually comes to light. Although the President has given her assent to the Maintenance and Welfare of Parents and Senior Citizens Act which punishes children who abandon parents with a prison term of three months or a fine, situation is grim for elderly people in India.

According to NGOs incidences of elderly couples being forced to sell their houses are very high. Some elderly people have also complained that in case of a property dispute they feel more helpless. Many of them suffer in silence as they fear humiliation or are too scared to speak up. According to them a phenomenon called ‘grand dumping’ is becoming common in urban areas these days as children are being increasingly intolerant of their parents’ health problems.

Significant problems

The income which they derive after retirement is vey less and then imposition of tax burdens them with more responsibility.

Senior citizen maintains some standard in their working days with meager amount they are not able to continue with that. The present tax structures burdens them because with the small amount they are not able to meet present needs.

What our Senior Citizens want to say:

 When asked to one of a senior citizen here in Visakhapatnam, he said “ Tax on our pension is just like an woe over an worry. This system of our government is forcing us to count on our expenses in our old age. We all suffer from a hell lot of diseases and age old ailments, and for this we need much capital. But this system is curbing our movement by taxing our pensions regularly.”

Taking a tour in Varanasi, I asked a government employee who had just retired from the municipal office about this system which is prevailing in our country. He said, “Being a government employee till you are in service is lucrative, but as you reach near the age of retirement your woes never stop counting. You have to plan a lot, save money for your future. But saving money never helps in this modern era. And adding to this tension of ours, government is taxing our pensions as well as FD. We have no other option but to face the harsh reality of this world.”

Constitutional protection given to the senior citizens

In the Constitution of India, entry 24 in list III of schedule VII deals with the "Welfare of Labour, including conditions of work, provident funds, liability for workmen’s compensation, invalidity and old age pension and maternity benefits.

Further, Article 41 of Directive Principles of State Policy has particular relevance to Old Age Social Security."

Item No. 9 of the State List and item 20, 23 and 24 of Concurrent List relates to old age pension, social security and social insurance, and economic and social planning.  

Current tax slab for senior citizens in India

India Income tax slabs for Senior citizens (Aged 60 years but less than 80 years)

Income tax slab (in Rs.)	Tax
0 to 2,50,000	No tax
2,50,001 to 5,00,000	10%
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

India Income tax slabs 2012-2013 for very senior citizens (Aged 80 and above)

Income tax slab (in Rs.)	Tax
0 to 5,00,000	No tax
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

Suggestion and recommendation

There is a very famous Latin maxim “Ubi jus ibi remendium” which means when there is a right, there is a remedy.  Similarly in cases of imposition of taxes on senior citizen is clear violation of the Constitutional provision which have been discussed above. Though there is no clear cut remedy available in the Constitution because Directive principles of state policy is not enforceable in Court of Law. But because of growing problems faced by senior citizens, the need of hour is to frame policies which would not only help them but also provide them with a platform which would ensure their quality of life. Dispensing with the tax on the pension and FD of the senior citizen will be a small step in this direction.

Posted 14th May by Jayashree Gupta