As per the income tax act, a person attaining age 60 or more in a financial year even for a day becomes a senior citizen. Income tax gives relief to senior citizens in the form of a higher tax exemption limit. If a senior citizen is aged 60 or above but less than age 80, his income of Rs.3 Lacs p.a. is tax-exempt. If a senior citizen is above age 80 then his income up to Rs.5 Lacs is exempt from tax.
If you are still paying tax on income earned above the exempt limit, then you need tax planning. The government has incentivized savings and investment as deductions and exemptions under various sections of the Income-tax Act. If the interest earned on bank deposit is less than Rs.10000 then the bank won’t deduct TDS on the same. In case if the interest earned is more than Rs.10000, then the bank deducts 10% TDS on interest earned in a financial year. As a senior citizen, you can submit form 15H as a declaration that your income is less than the tax-exempt limit.
While investing for tax planning, for senior citizen safety of capital and regular stream of income to plan for their monthly expenses are main objective behind any investment. As age increase, expenses on health related issues also increases. Keeping this in mind, let’s discuss few of the tax savings option most suitable for Senior Citizen taxpayer.
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- Invest in Senior Citizen Savings Scheme (SCSS) – In the falling interest regime, currently, this is one of the best investment options with high interest and the highest safety of capital. To invest in SCSS, investors can visit a bank or post office and complete investment formalities. The interest rate applicable from 1st April 2020 is 7.4% p.a. and the duration of the scheme is 5 years. It can be extended for 3 more years on maturity. The minimum age for investing in SCSS is 60 years. The minimum and maximum amount for investment is Rs. 1000 and Rs.15 lacs respectively. Interest is paid on a quarterly basis and directly credited to bank a/c. TDS is applicable if interest paid is above Rs. 50000 in a year. Investment in SCSS is eligible for deduction U/s. 80C upto Rs. 150000 in a financial year. It’s advisable to invest in SCSS for regular income and save taxes as well.
- 5 Year tax saving Bank FD – Tax savings FD of 5 years by banks is also eligible for deduction U/s. 80C up to Rs. 1.5 Lacs p.a. in a Financial Year. TDS is applicable on interest earned on Bank FD. An investor can select cumulative or non-cumulative options for interest payout.
- 5 Year Term deposit of Post office – Currently interest on 5 years’ time deposit is 6.7% p.a. Investment in Time deposit is eligible for deduction U/s. 80C. Investment in Post office schemes is one of the safest investment avenues in India.
- National Savings Certificate – Minimum investment in NSC is Rs. 1000 and maximum there is no limit on investment. NSCs of 5 years maturity is available in a post office. To invest in a National Savings Certificate investor has to visit a post office and complete investment formalities. The current Interest rate applicable for 5 years duration NSC is 6.8% p.a. Interest is compounded annually but payable at maturity.
- Buy health insurance and save taxes – Mediclaim policy is a must for senior citizens. As age increase medical and health-related expense also increases. For senior citizen deduction eligible for Mediclaim premium payment U/s. 80D is Rs.50000 p.a.
- Claim your Medical expenses on Specified critical illness – Expenses incurred on treatment of specified ailments like AIDS, cancer, and neurological diseases is eligible for deduction U/s. 80DDB up to Rs.1,00,000 p.a. for senior citizen age of 60 years or above.
It’s advisable for senior citizen to save taxes they should invest in an instrument which helps them to earn regular income or keep their capital safe. Wrong commitments for regular investment in avenues like ULIP or Pension policies to create retirement corpus is few of common mistakes / mis-selling affecting their financial portfolio as well as their retirement savings. Get in touch with our financial planners at Minty to know most suitable investment avenues for tax planning purpose.
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