Senior Citizens make up nearly 9% of our population. The Union Budget 2018 brought a breather to senior citizens, ever since the Finance Minister, Arun Jaitley, announced a bouquet of tax benefits for the elderly.
The Union Budget 2018 proposed an increase in tax exemption limits vis-a-vis interest income on bank and post office deposits, health insurance premiums, medical expenses and so on. Senior citizens also enjoy higher interest on FDs and RDs. Senior Citizens can make the best use of Pradhan Mantri Vaya Vandana Yojana, by investing more than just the Rs 7.5 Lakhs. The upper limit currently stands at Rs 15 Lakhs.
On World Senior Citizens Day 2018, we list out the tax benefits that the Union Budget 2018 has conferred on the elderly. We have also listed other benefits that senior citizens can avail.
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The interest income from bank deposits like savings bank accounts, fixed deposits, recurring deposits; and post office schemes are exempt up to Rs 50,000 a year under Section 80TTA of the Income Tax Act, 1961. The tax exemption limit was raised from Rs 10,000 to Rs 50,000 a year in this Budget. No tax will be deducted at source (TDS) on such income under Section 194A of the Income Tax Act, 1961.
A majority of senior citizen’s retirement funds comprise of fixed deposits and post office schemes. For senior citizens whose income falls under the tax bracket, this move will reduce tax liability and increase savings.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) was launched in 2017 to provide a pension to senior citizens. This scheme was only available from May 4th 2017 to May 3rd 2018. In his Budget 2018 speech, the Finance Minister proposed to extend Pradhan Mantri Vaya Vandana Yojana up to March 2020.
The maximum investment limit under PMVVY has been doubled from Rs 7.5 Lakhs to Rs 15 Lakhs. PMVVY gives guaranteed interest rate of 8% a year. With monthly compounding , you can enjoy effective annual return of 8.3%. The returns are assured, but proceeds are taxed at maturity.
The tax deduction under Section 80DDB vis-à-vis medical expenditure for specific diseases has been increased to Rs 1 Lakh for both, senior citizens and super senior citizens.
Earlier the Section 80DDB tax deduction limits were Rs 60,000 for medical treatment of specified diseases of senior citizens or senior citizen dependents and Rs 80,000 for super senior citizens or dependents.
Medical inflation in India is around 13-15%. An enhancement in the tax deduction limits will encourage senior citizens to avail adequate health insurance to protect them from growing medical expenses. It will also encourage children to take adequate medical cover for dependent senior citizen parents.
Senior citizens enjoy special interest rates on fixed deposits. Depending on the tenure, they can earn a maximum of 7.55% a year, 8.0% for 1 to 5 years and 7.9% for more than 5 years. On an average, senior citizens enjoy around 0.5% more on FDs, compared to other citizens.
Retired senior citizens who draw a pension from the EPFO through an LIC pension unit can claim a standard deduction of Rs 40,000. The proceeds from the EPFO and the LIC pension unit are taxable under the head ‘Income from salary’. Starting from Financial Year 2018-19, senior citizens can claim a standard deduction of Rs 40,000 on pension received from EPFO and employers.
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