When my grandfather retired from his job as a veterinary doctor, he realised that his usual investments like fixed deposits and land weren't cutting it anymore. They were sufficient when he had a regular paycheck, but now he needed something more reliable.
When you're young, you can afford to take risks with your money. You might invest in the stock market, where things can go up and down quickly. But as you grow older, you want something more stable, such as investments that give you a consistent income without too much risk, especially when it comes to taxes.
My grandfather believed in one thing, ‘Retirement means you need money to cover your everyday expenses without relying on anyone else.’
That's why he started looking into investments that would help him save on taxes, while giving him a steady income. He wanted something safe and guaranteed.
As my grandfather embraced the need for change to secure his retirement freedom, we sought advice from Chartered Accountant Abhay Asknani for tips on how senior citizens can make the most effective tax-saving investments.
Senior Citizen Savings Scheme (SCSS):
Tailored for Indian citizens aged 60 and above, the Senior Citizen Savings Scheme (SCSS) stands out as a favoured avenue for tax-saving investments, promising both security and returns. Accessible through post offices or authorised banks, this scheme permits deposits up to ₹15 lakhs. Initially spanning 5 years, the scheme allows for an additional 3-year extension post-maturity. Tax benefits are afforded under Section 80C of the Income Tax Act, 1961, although interest earnings are subject to applicable tax slabs.
National Savings Certificate (NSC):
The National Savings Certificate (NSC) presents another attractive option for tax-saving investments, particularly favoured by senior citizens. Available at post offices, NSC is low-risk avenue with a tenure of up to 5 years. Interest, compounded annually, is reinvested along with the principal amount upon maturity, which carries no cap. Tax benefits under Section 80C of the Income Tax Act allow for deductions annually when interest amounts are reinvested. The only taxable component is the final payout upon maturity.
Pradhan Mantri Vaya Vandana Yojana (PMVVY):
PMVVY offers retirees a guaranteed monthly income over a ten-year period, providing financial stability during times of falling interest rates. With a maximum investment limit of ₹15 lakhs per individual, PMVVY allows seniors to choose between a lump sum purchase price or a pension amount. While contributions to PMVVY do not qualify for tax deductions under Section 80C, the programme is exempt from Goods and Services Tax (GST).
National Pension System (NPS):
The NPS, regulated by the Pension Regulatory and Development Authority (PFRDA), offers a range of pension funds and investment options for retirement savings. Subscribers can avail tax benefits under Section 80 CCE and Section 80 CCD(1), with additional deductions for NPS contributions up to ₹50,000 under Section 80CCD (1B). Furthermore, tax exemption is available for annuity purchases and superannuation under Section 80CCD (5).
Insurance Premiums:
Health insurance and life insurance premiums offer tax advantages under Section 80D. Senior citizens can claim a higher deduction cap of up to ₹30,000 for health insurance premiums, while non-retirees are allowed a deduction of ₹20,000. Carefully chosen insurance plans not only provide returns on investment but also offer tax savings, making them a prudent investment choice.
Public Provident Fund (PPF):
PPF accounts, available through Post Offices, offer a safe and tax-efficient investment option for individuals with a long-term investment horizon. With a maximum investment limit of ₹1.5 lakhs annually, PPF deposits mature tax-free after 15 years. While PPF does not provide regular income, its tax-free maturity proceeds make it an attractive choice for risk-averse investors looking for long-term savings options.
Tax-Free Bonds:
Senior citizens looking for tax-efficient investments with steady returns can consider tax-free bonds. Issued by government-supported institutions, these bonds provide tax-free interest income, making them attractive for those in higher tax brackets. While interest earned on tax-free bonds is exempt from taxation, selling them after one year may incur long-term capital gains tax at a rate of 10 per cent, based on the investor's income tax bracket.
Equity Linked Savings Schemes (ELSS) Mutual Funds:
For seniors seeking growth in their investments while saving on taxes, ELSS Mutual Funds are a top choice. These funds not only offer returns that outpace inflation but also provide tax benefits under Section 80C of the Income Tax Act. Investing in ELSS can help defer taxes up to ₹46,800 annually, with a deduction limit of ₹1.5 lakhs. While ELSS funds involve some risk due to their equity exposure, they remain one of the most effective tax-saving strategies, offering both tax savings and potential capital appreciation.
