As the new financial year 2023-24 kicks in, it’s time to revisit the financial goals and tax liability to get the most value for your money. For senior citizens, it is more important to harmonise their income and tax outgo to maximise the benefits for a peaceful and hassle-free retired life.
Taxpayers now have the option to choose either the old or the new tax regime according to their needs. While both systems have advantages and disadvantages, they offer taxpayers the means to better plan their financial objectives based on their income capabilities.
Those who opt for the old tax regime, which offers certain deductions and exemptions with higher tax rates, have several tax-saving options at hand. On the other hand, the new tax rule has fewer exemptions and/or deductions, but has lower tax rates.
Some believe that investment in tax-saving instruments can help seniors.
Says Ankit Jain, partner, Ved Jain & Associates: “Investment is crucial for senior citizens as it can help generate income, beat inflation, meet future expenses, leave a legacy, and maintain financial independence. Investing in tax-saving instruments can further reduce tax liabilities and optimise returns.”
Here are some tax-saving instruments that senior citizens could consider
Senior Citizen Savings Scheme (SCSS): SCSS is a government-backed scheme that offers a high-interest rate and is available to individuals aged 60 years or above. The investment limit for SCSS has been enhanced to Rs 30 lakh in the latest budget, and the tenure is of five years, which can be extended for a further three years. Investments in SCSS get a deduction under Section 80C of the Income-tax Act, 1961.
Tax-Saving Fixed Deposits: Tax-saving fixed deposit schemes are offered by banks, and non-banking financial institutions with a fixed tenure of five years, which essentially means that one cannot withdraw the amount until maturity.
These plans have several benefits for senior citizens. They can avail of deductions of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961. Additionally, banks offer pensioners higher interest rates than a standard fixed deposit plan, and the rates remain unchanged.
However, the interest earned on the deposits is taxable and deducted at source. These plans offer the flexibility of receiving the interest amount monthly or quarterly, which can be reinvested in the principal amount. Besides, tax-saving FDs can be held in single or joint mode.
Adds Jain: “Fixed deposits are a popular investment option for senior citizens, as they offer guaranteed returns and low risk. So they can invest in fixed deposits with banks or post offices.”
Health Insurance: Health insurance is an important investment for senior citizens, as it can help cover medical expenses and provide financial security in case of illness. Premiums paid towards health insurance for senior citizens are eligible for a tax deduction up to Rs 50,000 under Section 80D of the Income-tax Act, 1961. Therefore, those above 60 years can claim a maximum tax deduction of up to Rs 50,000 on medical expenses or health insurance premiums.
Says Parth D. Shah, founder, Parth D Shah & Co., a tax consultancy firm: “Senior citizens should have medical insurance. If they don’t have it, their medical expenditures would be higher.”
