In the case of senior citizens, tax savings are all about reducing their financial burden while making smart decisions to ensure their money lasts for a longer duration.
Here’s a lowdown on a few steps that senior citizens can initiate when it comes to saving on taxes.
Filing of income tax
Higher tax exemption threshold: Senior citizens of 60 and 80 years of age gain a higher exemption limit of Rs 3 lakh as compared to Rs 2.5 lakh for those below the age of 60. The exemption limit for senior citizens aged 80 and more is even higher, which is at Rs 5 lakh. This aids them to lower their taxable income.
Deductions under Section 80TTB of the Income-Tax Act (ITA), 1961: This allows senior citizens to claim a savings deduction of up to Rs 50,000 annually on interest earned from deposits with banks, co-operative societies, or post offices. This exceeds the Rs 1.5 lakh deduction available under Section 80C of the ITA.
Utilising the standard deduction: Senior citizens can gain from the standard deduction of Rs 50,000, which was introduced in the Union Budget 2020. It applies to pensioners even in case they aren’t employed, thus ensuring ease of the tax burden.
Investing in asset classes
Health insurance premiums: It is possible to avail higher deductions for health insurance premiums by senior citizens under Section 80D of the ITA. A senior citizen can deduct up to Rs 50,000 annually for health insurance premiums paid for themselves or their partner, higher than the Rs 25,000 threshold for those below 60 years of age.
The maximum deduction for medical treatment of a dependent older than 60 years or a super-senior citizen (above 80 years) is Rs 1 lakh for tax purposes under Section 80DDB of the ITA.
Senior Citizen Savings Scheme (SCSS): As a government-backed savings scheme suitably designed for senior citizens (aged 60 years and above), it provides a secure and attractive investment tool. A senior citizen is assured of a fixed interest rate, payable quarterly. The scheme provides a high interest rate of 8.2% as of March’s end quarter and tax deductions up to Rs 1.5 lakh under Section 80C of the ITA.
Public Provident Fund (PPF): Those making contributions to PPF accounts tend to become eligible for tax deductions under Section 80C of the ITA. The interest earned and the maturity proceeds are tax-exempt, making PPF a tax-efficient savings tool. An individual can secure investment with guaranteed returns of 7.1% as of March end quarter, tax-deductible contributions, that is Rs 1.5 lakh under Section 80C of the ITA, and a 15-year lock-in for long-term wealth creation.
National Savings Certificate (NSC): It provides relatively low risk and has a tenure of up to five years. An investor gains the interest accrued and the principal at the time of maturity through annual compounding without any upper limit. Tax benefits are accessible under Section 80C of the ITA, which allows deductions annually when the interest is reinvested. It is important to note that the sole taxable component is the final payout.
Tax-Saving Fixed Deposits(FDs): Investment in regular FDs offered by banks can be another avenue for senior citizens. Typically, such FDs have a lock-in period of five years and provide tax benefits under Section 80C of the ITA. This is quite similar to other tax-saving instruments. While the interest earned on such FDs is taxable, senior citizens can benefit from higher interest rates than regular depositors.
This way, by choosing proper investment avenues, senior citizens can effectively manage their taxes and save more in the evening of life. Before choosing any investment tool, it is advisable to consult a professional tax consultant or financial advisor to aid in understanding these exemptions in a clear and precise manner to ensure optimal investing.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
