Senior citizen taxpayers look for tax-saving options to reduce their tax liability and also to fetch them a regular income. For most senior citizens, pension income is the primary source while they may receive dividends, rental and other income as well. Some of them could also be working and earning consultancy income.
As far as tax savers for senior citizens are concerned, most of them yield a fixed return. Still, some exposure to equity funds proving tax benefit may be considered by those with a high-risk appetite and not relying entirely on short-term income from them.
Here are a few tax-saving options for senior citizens.
Senior Citizen Savings Scheme (SCSS)
Senior Citizen Savings Scheme (SCSS), a 5-year investment scheme, is a popular investment option for those who are 60 years and above. One may open more than one SCSS account but the combined limit is capped at Rs 15 lakh. The interest is payable quarterly and is fully taxable and to be added to one’s ‘Income from other sources’.
5-Year Tax Saving Fixed Deposits
All banks provide tax-saving fixed deposits (FDs) that come with a fixed rate of interest and also help taxpayers save income tax. The amount invested up to Rs 1,50,000 per financial year in a 5-year tax saver FD qualifies for deduction from total gross income and thus reduces tax liability for that year. The interest payment can be received monthly, quarterly, half-yearly, annually, or as a cumulative option. The term of the deposit in tax-saving FD is 5 years and deposits cannot be withdrawn before the end of the term.
National Savings Certificates (NSC)
If you want to invest for 5-years with a fixed return and also tax benefits, NSC suits you. NSC is a one-time investment and the lump sum invested is locked in for a period of 5 years. There is no interest payment on a monthly or annual basis to investors because the interest is accumulated and paid only on maturity along with the principal invested. There is no maximum limit for investing in NSC but tax benefit under Section 80 C is only up to Rs 1.5 lakh per financial year. NSC suits conservative investors who want to preserve their capital as the post-tax return is low in them.
Equity-linked savings scheme (ELSS)
By investing in ELSS, you can not only save tax but also let your money participate in the growth potential of equities. ELSS are mutual fund schemes that invest predominantly in equities, provide tax benefits under Section 80C up to Rs 1.5 lakh and come with a lock-in period of three years on the investment made. Markets may not remain up always and one may find a 3-year return on the lower side. In such a case, it’s better to continue and wait for the market to go higher before redeeming. While selecting the right ELSS schemes, make sure you look at their long-term performance and choose any consistently performing funds. Also, importantly, look at their sector allocation to avoid duplication.
National Pension System
Any Indian Citizen, resident or non-resident, and Overseas Citizen of India (OCI) between the age of 65-70 years can also join NPS and continue or defer their NPS Account up to the age of 75 years.
Subscribers joining NPS after the age of 60 years will have an option of normal exit from NPS after the completion of 3 years in NPS. In this case, the subscriber will be required to utilize at least 40% of the corpus ( 80 per cent if before 3 years) for the purchase of annuity and the remaining amount can be withdrawn in lumpsum.
On opening an NPS account, a Tier I account gets opened automatically, while the Tier II account can be opened to keep savings liquid as it comes with no lock-in period.
The contribution made in NPS not only qualifies for deduction under Section 80 CCD (1) up to a limit of Rs 1.5 lakh per financial year but also comes with additional tax benefit under section 80CCD(1B) up to Rs 50,000 a financial year.