Best Investment Options for the Tax-Conscious Senior Citizen - Baltic Master
Best Investment Options for the Tax-Conscious Senior Citizen

Best Investment Options for the Tax-Conscious Senior Citizen

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Taxes are inevitable for anyone who participates in the growth of the economy. No one knows this better than senior citizens who have paid tax more than any other segment of the population. Having paid taxes most of their lives, retirement is a time when they prefer to save on tax as much as they can.
In today’s economy the options for tax-saving are limited but senior citizens do have some nifty options that can be used to evade the taxman, legally.

Tax-Free Bonds

Infrastructural organizations that are created or backed by the government of India fall under this category. Some of the best-known options are the Rural Electrification Corporation Ltd. Or the REC, HUDCO which is short for the Housing and Urban Development Corporation Ltd, the Power Finance Corporation Ltd (PFC), etc. These corporations have tenders which they put out to construct infrastructure for the rapidly growing nation. They issue bonds to the general public which carry very high safety ratings and can be traded just like stocks on an exchange.

These bonds are essentially loans that you are giving to the Government with the government owing you the principle amount plus interest at time of maturity. They can last for a long time as government projects are also lengthy and undertake heavy construction.

Usually the lock-in periods on these bonds vary from 10 to 15 to 20 years depending on which government body issues it and the size of the project. They are lucrative for seniors who are looking to save tax as the interest is completely tax-free which also protects them from TDS which stands for Tax Deducted at the Source.

The SCSS by Government of India

Senior Citizen Savings Scheme or SCSS are schemes that are specifically for senior citizens by the Government of India. You can invest in them through post offices or a scheduled commercial finance institution. The schemes enjoy heavy tax exemption on interest rates that can go as high as 8.3% per annum. The upper cap of how much a senior citizen can invest is set at INR 15 Lakh. Retirees are required to put the entire retirement sum into an account if it is not more than the upper cap.

They provide tax deduction under the Section 80C of the Income Tax Act. The tax deduction cannot exceed the amount of INR 1.5 Lac per annum. The drawbacks to this kind of investment are felt at the time of premature withdrawal as can easily happen in old age.The tax deduction becomes unavailable on both early withdrawal as well as extension of scheme past 5 years. So, it is a safe haven for a maximum of 5 years.

Senior Citizen Fixed Deposits

Fixed Deposits have gotten a lift in the most recent budget for FY18-19. It was announced that the new section 80TTB mandates an increase in the upper ceiling for taxable interest from FD (Fixed Deposits) for senior citizens. Earlier it was set at INR 10,000 but has been upped to INR 50,000 annually. This applies to senior citizens only.

Owing to the recent changes in the economy, it had been estimated that bank interest rates on fixed deposits would drop and they have. But, some companies like Bajaj Finance are still offering senior citizens fixed deposits interest rates as high as 8.2% in some cases.That means on an investment of INR 5 Lacs for one year, you would be earning around INR 40,000 in interest. Being under INR 50,000, it would be completely tax deductible.

In the end, fixed deposits have retained their position as the safest investment instrument for senior citizens, all because of the FY18-19 budget.

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