Which ITR form and tax regime is best for senior citizens with bank deposits and mutual fund income?

If you are a senior citizen with most of your income coming from bank deposits and a small portion from mutual fund dividends, you might find yourself wondering which income tax return (ITR) form to file and whether the old or new tax regime makes more sense. The answer usually depends on the exact mix of your income and whether you have sold any mutual fund investments during the year. Here’s what you need to know.

Today's Q&A explains such details in response to a query by a reader.

Even if you have any foreign income or signing authority in a foreign account, you cannot use ITR-1. So you can use the form only if your taxable income comprised of interest on bank deposits and dividends from mutual funds does not exceed the threshold of fifty lakh rupees.

So in case you have redeemed any of your mutual fund investments, you will have to use ITR-2. It is irrelevant whether the capital gains are long term capital gains or short term capital gains. In case you have capital loss, you will have to use ITR 2 to be able to carry forward the loss.

However, in case your taxable income does not exceed ₹5 lakh, opting for old tax regime may be beneficial as you may be able to claim rebate upto ₹ 12,500 against your tax liability in respect of all your income except the long term capital gains on redemption/sale of equity oriented mutual fund schemes.

So the final choice between old tax regime and new tax regime would depend on the composition and quantum of your taxable income.