Tax Saving Investment Schemes for Senior Citizens

This article describes various tax-saving investment schemes for senior citizens.

Senior citizens desire their investment to give them a regular source of income and help them save taxes on their income. The Government of Income from time to time announces measures that ease the tax burden of senior citizens, thus impacting their savings capacity. These measures are justified since senior citizens have had to bear the burden of taxes during their working years. Senior citizens need to make the right investment decision so that they can avail the benefits of such government measures. Senior citizens should take their decision according to their requirements, as some investment options provide a regular source of income while others create wealth post-retirement.

Given are some of the top tax saving investment schemes for senior citizens:

Bank Fixed Deposits and Recurring Deposits

Fixed Deposits (FDs) and Recurring Deposits (RDs) are one of the safest investment options available. It guarantees a stable return on investment and helps senior citizens accumulate funds for the future. The interest rates offered on FDs and RDs are slightly higher for senior citizens as compared to normal rates. These investments also provide flexibility in choosing the tenure of investment. Under Section 80TTB of The Income Tax,1961, interest income of up to Rs. 50,000 is entirely exempted from tax for senior citizens during a financial year. Investments in FDs for the tenure of 5 or more years are allowed as deductions up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961. Therefore, FDs and RDs are certainly lucrative tax-saving investment options for senior citizens.

Post Office Fixed Deposits and Recurring Deposits

Post Office FDs and RDs work in the same way as bank FDs and RDs with an added layer of security. These deposits have almost no chance of default as they are backed by the government. Post Office deposits are free from all types of TDS deductions, unlike Bank FDs and RDs. The post office also provides monthly income schemes like Post Office Monthly Income Scheme (POMIS). Under Section 80C, investments in Post Office FDs for 5 or more years are allowed as deduction up to Rs. 1.5 lakhs.

Senior Citizen Savings Scheme

Senior Citizen Saving Scheme (SCSS) is designed to financially secure the life of senior citizens after retirement. The goal of this scheme is to provide a source of income to those who are reaching their old age and have little or no source of income. Under SCSS interest is paid on deposits made by the senior citizens. It is a fixed-income investment alternative for senior citizens. SCSS offers excellent returns on the invested amounts. The interest rate for the Q2 of FY22 is 7.4%. As it is a government scheme, it is highly safe and reliable. Under Section 80C of the IT Act, 1961, SCSS is eligible for tax deductions of up to Rs. 1.5 lakhs during a financial year.

Pradhan Mantri Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a retirement scheme operated, managed, and regulated by Life Corporation of India (LIC). This scheme is a retirement cum pension scheme, that aims to pay regular pensions to senior citizens. The tenure of PMVVY is 10 years. Currently, it offers interest at the rate of 7.4% p.a. compounded monthly. The monthly pension varies from Rs. 1,000 to Rs. 9,250 depending on the amount invested in the scheme by the senior citizen. The maximum purchase price under monthly mode is Rs. 15 lakhs. Although PMVVY does not provide any income tax benefits, the GST applicable to the scheme is fully exempted.

National Pension Scheme

National Pension Scheme (NPS) is a scheme sponsored by the central government as a social security initiative. Any individual belonging to the age group of 18-65 years can subscribe to this scheme. NPS is a voluntary retirement scheme regulated by Pension Fund Regulatory and Development Authority (PFRDA). This scheme individuals to save and invest systematically in a pension account during employment. NPS money is invested in equity and debt as per the choice of the investor. Under Section 80C, the deduction for contribution to NPS is allowed up to Rs. 1.5 lakhs. Also, an additional deduction of Rs. 50,000 under Section 80CCD(1B) is allowed. On maturity, 60% of the NPS investment is fully exempt from tax, and the balance 40% of the NPS corpus is used to buy monthly pension (annuity income).

Mutual Funds

Mutuals Funds are known to bring the element of growth and wealth creation in the portfolio of senior citizens. Mutual Funds also offer several retirement plans. Mutual funds investment can be done in equity or debt depending on the risk appetite of the senior citizen. Among equity mutual funds, large-cap funds are relatively low risk whereas mid-cap and small-cap funds have high risk. Section 80C provides a deduction of up to Rs. 1.5 lakhs for investment in a particular type of mutual funds i.e., Equity Linked Saving Scheme (ELSS).