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Tax-Saving Tips for Senior Citizens Research Team | Posted On Tuesday, April 09,2019, 04:17 PM

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Tax-Saving Tips for Senior Citizens



Retirement is the time when people stop working and enjoy a stress free life. The biggest challenge is managing the retirement corpus, so that it doesn’t run out. Given below are some tax efficient investments for the retired, to provide for the monthly household expenses.

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Tax-Saving Tips for Senior Citizens

1. Invest in Senior Citizens Savings Scheme:

The Senior Citizens Savings Scheme (SCSS) is an investment scheme for senior citizens, who want to earn an interest income. It is a safe investment option that also offers tax benefits. The maximum investment in SCSS is Rs 15 Lakhs and is available through banks and post offices across India.

The SCSS scheme can be availed for a maximum of 5 years and can then be extended for a further 3 years. Currently, the rate of interest offered for senior citizens savings scheme is 8.7% 2018-19 (Q3), which makes it an ideal investment option. This is an effective long-term savings option which offers security and added features that are usually associated with any government-sponsored savings or investment scheme.

However, while the investment made under Senior Citizens Savings Scheme (SCSS) enjoys tax deduction under Section 80C of the Income Tax Act, 1961, the interest earned is added to your taxable income and taxed as per tax brackets.

What are the Benefits of Senior Citizens Savings Schemes?

Senior citizen savings schemes are one of the best investment options for retirees. As retirees will want to earn more income in retirement, saving in SCSS makes sense. There are other benefits of investing in this scheme as well. They are as follows:

  • Suited for retirement: the scheme is specifically designed for retirees who are above 60 years of age. The scheme can be easily availed at the nearest post office or bank. The applicant must collect and fill the application form and submit it along with supporting documents.
  • Reliable: the scheme is backed by the government and is one of the safest and risk-free investment avenues. The interest income on this scheme is pre-specified and is not affected by market fluctuations.
  • Multiple accounts: a single investor can opt for multiple senior citizen savings scheme accounts. The account holder can appoint a nominee or can open a joint SCSS account. However, the second applicant must be the spouse of the main applicant.
  • Good returns: Currently, the SCSS rate has been set at 8.7% for January 2019 to March 2019. So, the scheme provides high return on investments. 
  • Flexible duration: the SCSS has a maturity period of 5 years and can be further extended for another 3 years.
  • Tax saving instrument: You enjoy Section 80C tax benefits up to Rs 1.5 Lakhs a year.
  • Select your investment: You can make only a one-time investment in SCSS account. The deposit must be in multiples of Rs 1,000. The maximum amount that can be invested is Rs 15 Lakhs.

2. Avail Benefits Under the Income Tax Slab Rates:

The government has devised income tax slabs, keeping in mind the needs of senior citizens. Senior citizens enjoy tax exemption up to Rs 3 Lakhs.  Normal citizens (under 60 years), enjoy a minimum tax exemption up to Rs 2.5 Lakhs a year. Super-seniors enjoy tax exemption up to Rs 5 Lakhs. Senior citizens enjoy TDS exemption of up to Rs 50,000 a year on interest income from FD.

Income Tax Benefits for Senior Citizens:

Listed below are a few tax benefits enjoyed by senior citizens as per the income tax act, 1961:

  • A senior citizen is entitled to a tax deduction on medical insurance premium of up to Rs 50,000 a year. Senior citizens are also exempt from paying advance tax.
  • For senior citizens, there is no TDS deduction on the interest income, up to Rs 50,000 a year.
  • In case of certain specific critical ailments, senior citizens are allowed a tax deduction of up to Rs 1 Lakh for medical expenditure under Section 80DDB.

3. Invest in Health Insurance:

A health insurance cover is very essential for senior citizens as it provides the much needed hospitalisation cover and treatment expenses.  Availing Health Insurance is a smart option as it not only covers medical costs, but is also a tax saving avenue for senior citizens. In case of emergency hospitalization, a health insurance cover takes care of all your medical expenses. The deduction limit for senior citizens under Section 80D has now been increased from Rs 30,000 to Rs 50,000 a year on premiums paid for health insurance plans. If a senior citizen is paying for the health insurance premiums of a very senior parent, he/she is eligible for an additional exemption of Rs 50,000 a year.

SEE ALSO: Income Tax Saving Tips

Benefits of Health Insurance:

  • Health problems leading to hospitalization are high post retirement. So, a health insurance cover keeps you relaxed and financially prepared for medical emergencies.
  • Covers all hospitalization expenses, despite rising cost of medical treatment.
  • Cashless facility is offered by insurers at network hospitals, which helps the insured get proper treatment at the right time without going through the hassles of paying high medical bills.
  •  Offers free health check up facilities as preventive measures, which are covered by some health insurance plans.

4. Invest in Post Office Monthly Income Schemes:

Post office offers a monthly investment scheme called POMIS, which is a popular scheme that can help retirees earn a monthly income for lifestyle expenses and healthcare costs. It is highly reliable and one of the best investment options for people who are looking for a constant source of income.

It is a low-risk monthly income scheme and generates a steady income. You can invest up to Rs 4.5 lakhs individually or Rs 9 lakhs jointly, for an investment period of 5 years. The current Post Office Monthly Income Scheme interest rate is 7.8% a year and the interest is paid on a monthly basis.

The interest income can be directly credited to the savings account at the same post office. Upon maturity, the investor gets back the principal, but the interest income is fully taxable. However, it is a good investment option for retirees who do not want to lock the retirement corpus in fixed deposits.

SEE ALSO:  New Tax Rules Which Help To Save Tax

Benefits of Monthly Income Scheme:

The key features of the POMIS scheme are mentioned below:

  1. The post office monthly income scheme can be held jointly or individually.
  2. You can opt for a POMIS account with a minimum investment of Rs 1,500. You can also opt to invest a higher amount, which must be in multiples of Rs 1,500.
  3. The maturity period of this scheme is 5 years from the date of opening the account.
  4. In case of a joint account, each holder has an equal share.
  5. Any number of accounts can be opened at any post office, subject to maximum investment limits by adding balances in all accounts.
  6. The POMIS scheme continues to earn interest after the maturity period, if the amount is not withdrawn by the account holder.
  7. The account holder can also add a nominee.
  8. The POMIS account can be freely transferred from one post office to another.
  9. There is no specified limit on the number of POMIS accounts held singly or jointly. The accounts are subject to maximum cumulative balance criteria. Cumulative maximum balance for individual account is Rs 4.5 Lakhs and jointly held accounts is Rs 9 Lakhs.
  10. The post office monthly income scheme does not enjoy Section 80C benefits and the interest and the maturity amount is taxed.

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