How Senior Citizens Can Get The Best Out Of Tax Saving Investments?

Tax benefits for senior citizens

• For senior citizens, an income of up to Rs 3 lakh can be sought for tax deductions. Therefore, if investments are properly managed investments up to Rs 5 lakh can be considered as tax-free income for them.
• Under sections 80C and 80D, senior citizens can also claim tax deductions. Seniors can earn deductions of Rs 1.5 lakh under Section 80C on instruments such as National Savings Certificate, insurance, tax-saver fixed deposits (FDs) and so on. Apart from that, elderly people also generally enjoy a higher fixed deposit interest rate of up to 50 basis points.
• Senior citizens can also seek an exemption of up to Rs 50,000, under section 80TTB, on the interest income from savings or fixed deposits maintained with a bank, post office etc.
• On purchase of health insurance premium senior citizens can also seek tax deductions. As a senior citizen, you can seek an exemption on your health insurance premium of up to Rs 50,000. You can use a deduction of up to Rs 50,000 on your medical costs if you don't have a health insurance plan. In particular, senior citizens can seek an exemption of up to Rs 1 lakh under section 80DDB on payment for the medical treatment of specified diseases.
• A regular exemption of Rs 50,000 can also be received on their salary or pension income by elderly people. In case a senior citizen does not have any business or professional income, they are therefore not eligible for paying any tax in advance.
• Senior citizens can also avoid from Tax Deduction at Source (TDS) by submitting Form 15H, as the tax determined on individual gross income is zero or below the deduction cap after all exemptions have availed.

The best tax saving investment options for regular income

There are different holdings that deliver a monthly income on a regular basis. For senior citizens and pensioners, below are some of the best investment vehicles:

Recurring Deposits/Fixed Deposits

One of the most famous types of investments made by retired individuals is fixed deposits (FD) and recurring deposits (RD). Banks also provide a relatively higher rate for seniors on FDs and RDs. An interest income of up to Rs.50,000 for senior citizens during a fiscal year is fully tax-free under Section 80TTB of the IT Act. If you invest in post office FDs and RDs, the same tax deductions as bank deposits are applicable. When it comes to regular income senior citizens can also start investing in the Post Office Monthly Income Scheme.

Senior Citizen Savings Scheme (SCSS)

SCSS is an outstanding investment choice for senior citizens pursuing long-term saving schemes that provide additional advantages in terms of safety. Not only is the interest rate paid on this scheme significantly higher than that of the standard savings and fixed deposit accounts, but under Section 80C of the IT Act, 1961, you are now liable for tax benefits of up to Rs.1.5 lakh.

Public Provident Fund

Only on behalf of his or her name, one can open a PPF account, and no joint account alternative exists. PPF deals with a tenure of 15 years, and for a block of 5 years can be extended further. In order to keep the account active senior citizens must deposit a minimum amount of Rs 500 per year which can go up to a limit of Rs. 1.5 Lakh in a single fiscal year. Deposits made under this scheme are tax-exempted under section 80C of the Income Tax Act. Even the interest received is absolutely tax-free.

National Pension System

Individuals between 18 and 65 years of age can invest in the National Pension System. Taxpayers are liable for deductions of up to Rs.1.50 lakh on contributions made towards NPS under Section 80C. Likewise, individuals are also liable for additional benefits under Section 80CCD, up to Rs.50,000. Based on the individual's preference, the contribution rendered in the NPS scheme can be allocated into equity bonds or debt bonds, or both.

Note: To know more about post office tax saving schemes click here.

How senior citizens should make their retirement planning?

With the living standards and the cost of medical treatment rising, bringing a retirement plan into effect as quickly as possible is essential. Individuals make a really significant flaw because of multiple opportunities for withdrawals from long-term investment strategies such as NPS, EPF or PPF, and this influences financial goals. Only in emergency circumstances must investors practice these strategies. This practice of long-term dedication will help the corpus to flourish. In the event of a transfer of your current job location, rather than withdrawing the capital, the individual must transfer the EPF account to the new employer, as this mechanism is free from tax, and market-risks as well as generate higher returns. It is important to have a decent health care plan that protects your retirement age. And after retirement, generate a diversified portfolio by investing in the Senior Citizens' Savings Scheme, PM Vaya Vandana Yojana, PPF and bank FDs.

Invest in debt assets or bank FDs, where the yields will be considerably higher when it comes to savings accounts. Hence, by heading for long term secure investments that would generate an ample yield to be used only for retirement, an investor must make smart retirement or financial planning. And the peaceful sound here is that, if pension income and interest income are their only source of annual income, it has been decided to exempt senior citizens from filing income tax returns by the finance minister on the recent Budget 2021 update. In order to push banks to deduct tax against senior citizens above 75 years of age who have a pension and interest income from the bank, Section 194P was newly introduced.