Investment Plans

Best Tax Saving Investment Schemes for Senior Citizens

By Admin
Mar 04, 2021

Be it for salaried employees or self-employed personnel, retirement is an important phase for all. Everyone wants to enjoy a secured retirement after an age-long busy professional period. The primary target of senior citizens as investors is to ensure a consistent monthly income plan along with the accumulation of wealth with minimal tax liability.

The perfect balance of market-linked products along with a regular income flow is the biggest challenge for retired persons. Here we will have a glance into some of the best and most popular investment options with tax-saving facilities that are ideal for the senior citizen age bracket.

1. Senior Citizens Savings Scheme (SCSS)

This particular scheme has been specifically crafted for people and above 60 years of age. But the age criteria decrease to 55 years in special cases like superannuation or voluntary retirement and also for those who have applied within a month of the accrual retirement benefit. The SCSS account can be opened in all the designated post offices and banks which deal with the product. 

An individual can make a maximum deposit of not more than INR 15 lakh under SCSS. It comes with a fixed tenure of 5 years however, it is extendable up to 3 more years after maturity. 

Under Section 80C of the Income Tax Act, the investment offers tax benefits, however, the interest is taxable as per the relevant tax slab.

2. National Saving Certificate (NSC)

National Saving Certificate (NSC) is not only for senior citizens but also a safe and secured investment option for every individual. An NSC account can be easily opened by anybody through any post office across the country. This is an investment option with a comparatively lower risk of loss and comes with a tenure of 5 years. As the term completes, the investor receives the principal with the accumulated interest. The deposit amount of NSC bears no cap. 

Moreover, the investment under this scheme receives a tax benefit facility under Section 80C, except for the final interest, which is taxable.

3. Bank Fixed Deposit (FD)

One of the most popular, convenient, and safe investment options not only for retired senior citizens but for practically everyone is Bank Fixed Deposit. The most highlighting factor of this scheme is its simplicity of operation and maintenance. The banks offer 0.5% more interest rates for senior citizens. 

These fixed deposits come with a tenure of 5 years and receive tax benefits under Section 80C of the Income Tax Act. But, there is a lock-in period factor of 5 years. Although the investment has tax benefits, yet the interest is taxable. For senior citizens, the interest income up to INR 50,000 receives tax exemption. 

4. Health Insurance

This is one of the best investment schemes for senior citizens. The insurer will handle all the financial needs in case of hospitalisation. Keeping the alarming rise of healthcare costs, this is a very important investment option. 

Under Section 80D, the maximum deduction limit in the case of senior citizens is currently INR 50,000 on the total premium investment. An additional exemption of INR 50,000 is allowed to a senior citizen if he/she is paying a Health Insurance premium for another very senior citizen, maybe his/her parents or any other dependent.

5. Pradhan Mantri Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana by LIC, is a very good investment scheme for aged people, with minimal risk involvement. The maximum tenure can be extended up to not more than 10 years, with an interest rate of 8%. Depending on the amount of investment, the pension amount will range between INR 1,000 – INR 10,000. 

Although it is exempted from GST, the investment offers no tax deduction benefits.

6. Tax-free bonds

Issued by the government for any particular issue, there is nominal risk involved in this sort of investment. The tenure limit varies from 10-30 years, while the interest limit ranges between 7.3% and 7.5% per year. The maximum investment limit here is INR 10 lakh. But unlike the bank FDs, these bonds do not offer as lucrative returns when compared to other investment schemes, especially when the inflation rate is high. But there is a guaranteed tax-free interest return.

7. Public Provident Fund (PPF)

With the facility of tax-free interest, PPF scores high in the market. In respect of ease of maintenance, security, and liquidity, there is nothing like PPF. A yearly investment of only INR 500 is required to continue maintaining the PPF account. Partial withdrawals are allowed after the completion of the 5th year since the beginning of the investment. Post offices are the centres for opening this account along with certain designated banks. It is advisable to choose those branches of banks or post offices that allow the facility of online payment for better convenience.

The above discussion is preliminary guidance into the world of tax-saving investment schemes ideal for senior citizens. 

The tax slab for senior citizens more than 60 years but less than 80 years for FY 2020-21 and AY 2021-22 is:

Slabs for Taxable IncomeApplicable Tax Rates & Cess
INR 3 lakhs or lessNIL
INR 3 lakhs to INR 5 lakhs5% on taxable income + 4% cess on tax
INR 5 lakhs to INR 10 lakhs5% on taxable income between INR 3 Lakhs and INR 5 Lakhs + 20% on taxable income between INR 5 Lakhs and INR 10 Lakhs + 4% cess on tax
INR 10 lakhs or more5% on taxable income between INR 3 Lakhs and INR 5 Lakhs + 20% on taxable income between INR 5 Lakhs and INR 10 Lakhs + 30% on taxable income above INR 10 Lakhs + 4% cess on tax

The tax slab for super senior citizens more than 80 years for FY 2020-21 and AY 2021-22 is:

Slabs for Taxable IncomeApplicable Tax Rates & Cess
INR 5 lakhs or lessNIL
INR 5 lakhs to INR 10 lakhs20% on taxable income between INR 5 Lakhs and INR 10 Lakhs 
+ 4% cess on tax
INR 10 lakhs or more20% on taxable income between INR 5 Lakhs and INR 10 Lakhs 
+ 30% on taxable income above INR 10 Lakhs + 4% cess on tax

So a senior citizen and super senior citizen can pay NIL tax till INR 6.5 lakhs of the total income as long as there is a tax-saving investment of INR 1.5 lakhs every year. So, if the entire tax-saving limit of INR 1.5 lakhs is utilised every year, it could help save a big chunk of taxes and create an investment portfolio for the retired.

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