Pensioners get a better deal under Indian income tax in 2026 than most realise — and a meaningful improvement landed on 1 April 2025 that has gone underreported. The senior-citizen TDS-free interest threshold doubled from ₹50,000 to ₹1 lakh. Combined with the new regime's ₹12 lakh tax-free rebate band and the ₹75,000 standard deduction on pension income, most pensioners with modest portfolios now pay effectively zero tax. Here is the complete 2026 guide.
What's new for pensioners in 2026
- Senior-citizen interest TDS-free threshold raised to ₹1,00,000 (from ₹50,000) — effective 1 April 2025. Banks deduct TDS on bank deposit interest only above ₹1 lakh/year for seniors. (For non-seniors the threshold is ₹50,000.)
- New tax regime is the default from AY 2024-25 — but pensioners can still opt for old regime each year if it works out cheaper.
- No slab changes in Budget 2026 — existing FY 2025-26 (AY 2026-27) rates continue for FY 2026-27.
- The September 2025 GST exemption on individual health insurance also reduced senior-health premium outgo (separate from income tax but it affects net cash). See GST on insurance 2026.
Tax slabs for FY 2025-26 / AY 2026-27
New Tax Regime (default)
Applies the same slabs to everyone — no special senior-citizen relief beyond the standard deduction.
| Income | Tax |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Section 87A rebate makes income up to ₹12 lakh tax-free under the new regime — so with the ₹75,000 standard deduction on pension, an effective ₹12.75 lakh of pension income is tax-free for all pensioners in 2026.
Old Tax Regime (opt-in)
Retains the higher senior/super-senior basic exemption — better for pensioners with substantial deductions.
| Age band | Basic exemption | Slabs above |
|---|---|---|
| Below 60 | ₹2,50,000 | Standard slabs |
| Senior (60–79) | ₹3,00,000 | 5% ₹3-5L, 20% ₹5-10L, 30% above |
| Super senior (80+) | ₹5,00,000 | 20% ₹5-10L, 30% above |
Add the ₹50,000 standard deduction + 80C / 80D / 80TTB / 24(b) / 10(10D) etc. The old regime is materially better for pensioners who use 80D (medical insurance + medical for parents), 80TTB (₹50,000 interest deduction) and 80C deductions worth ₹1L+.
Key deductions for pensioners
| Section | Benefit | Limit (FY 2025-26) |
|---|---|---|
| Standard Deduction | Flat deduction on pension income | ₹75,000 (new regime) / ₹50,000 (old) |
| Section 80TTB | Interest on deposits with banks, post office, co-op (seniors only) | ₹50,000 |
| Section 80D | Health insurance premium + medical for parents (seniors) | Up to ₹1,00,000 (self ₹50K + parents ₹50K, both 60+) |
| Section 80DDB | Medical treatment of specified diseases (seniors) | ₹1,00,000 |
| Section 80U | Disability deduction (self) | ₹75,000 / ₹1,25,000 (severe) |
| Section 80C | PPF, ELSS, NSC, SCSS, tax-saving FD etc. | ₹1,50,000 |
Most of these are only available under the old regime. Under the new regime only the standard deduction applies — but the higher rebate band (₹12L tax-free) compensates for the missing deductions for most modest-income pensioners.
TDS on pension and interest — the practical rules
- Pension income — banks treat pension like salary income and apply TDS per your tax slab projection. Submit Form 15H to skip if your total income is below the taxable threshold.
- Bank interest (FD, SB) — TDS at 10% on annual bank interest exceeding ₹1,00,000 for senior citizens (raised from ₹50,000 effective 1 April 2025) and ₹50,000 for non-seniors. Submit Form 15H if no tax payable.
- EPF withdrawal — TDS rules apply on EPF withdrawn before 5 years of service.
- Annuity / NPS withdrawal — slab-rate tax on annuity income.
- Capital gains — no special senior rates; LTCG 12.5% (10% if equity above ₹1L) and STCG 20% (15% equity) apply normally.
Form 15H — the simplest tax-savings habit
Senior citizens (60+) whose total taxable income falls below the threshold can submit Form 15H to the bank, declaring no tax liability — and the bank then skips TDS on interest. File at the start of the financial year (April) for each bank where you hold deposits. Form 15H is a self-declaration; do not submit it if you actually owe tax, as that creates a false declaration.
Section 194P — super-seniors 75+ filing relief
If you are 75+, have only pension and interest income from the same specified bank, that bank computes your tax, deducts it and pays it on your behalf — you do not need to file an income tax return. This relief was introduced by Finance Act 2021 to ease the compliance burden on the very old. Confirm your bank is a "specified bank" and submit a declaration to use it.
Which regime to pick
For most pensioners with modest deductions (pension only, small interest income, no large 80C/80D claims), the new regime is simpler and produces a similar (or better) tax outcome, especially with the ₹12L rebate band.
For pensioners with substantial deductions — say PPF contributions still running, large health insurance premiums covering parents, mortgage interest under Section 24(b), 80DDB for chronic disease treatment — the old regime is often cheaper. Run both calculations every year before filing; you can switch annually.
Action plan for the 2026 tax year
- Submit Form 15H at all your banks in April if your total income is below taxable.
- Use Section 80TTB for the ₹50K interest deduction (old regime).
- Use Section 80D for health insurance premiums (yours + parents); GST-exempt premiums since Sep 2025 mean more of the rupee outgo is your real cost.
- If 75+ with only pension + interest from the same bank — explore the Section 194P relief; you may not need to file a return at all.
- Run both regime calculations before filing; pick the lower-tax one (you can switch annually).
- For the income side, see the 3-pillar retirement playbook and the SCSS strategy.
Frequently asked questions
What is the income tax exemption for senior citizens in 2026?
Under the new regime (default), the rebate band makes income up to ₹12 lakh tax-free plus a ₹75,000 standard deduction — effectively ₹12.75 lakh of pension is tax-free. Under the old regime, the basic exemption is ₹3 lakh (60–79) or ₹5 lakh (80+), plus a ₹50,000 standard deduction and other deductions.
Is pension taxable in India?
Yes — monthly pension from EPS, NPS annuity or government service is taxed as salary under the head "Income from Salaries" with the standard deduction applied. Family pension after death is taxed as "Income from Other Sources" with a separate one-third / ₹15,000 standard deduction.
What is Section 80TTB?
A deduction available to senior citizens (60+) on interest income from bank, post office and co-operative bank deposits, up to ₹50,000 per year. Available only under the old tax regime. Replaced Section 80TTA (₹10,000 SB-only) for seniors.
What is Form 15H?
A self-declaration form by senior citizens (60+) submitted to banks/issuers to skip TDS on interest income when total taxable income is below the threshold. File at each bank where you hold deposits, ideally in April.
Do I need to file an ITR if I am 75+?
Under Section 194P, super-seniors (75+) with only pension and interest income from the same specified bank can have the bank compute and deduct tax — exempting them from filing an ITR. Confirm bank eligibility and submit the prescribed declaration.
Sources: Income Tax Act 1961 Sections 16, 80C, 80D, 80DDB, 80TTB, 80U, 87A, 194P; Finance Act 2021 (Section 194P relief), Finance Act 2024 (interest TDS threshold raised); Budget 2026 (no slab changes); CBDT circulars; accessed May 2026. Slabs and thresholds can change with each Budget — verify against current law before filing. Editorial research, not tax advice.
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