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Senior citizens should look at investment options that not only offer risk-free returns but also allow tax deductions because tax planning is a significant component of saving on creating wealth in the golden years. In order to fulfill personal financial objectives without having to make last-minute tax-saving considerations, one should begin tax-saving at the beginning of a new fiscal year. Taxpayers can choose the new tax regime for FY 2022–2023 or continue with the old regime, and the basic exemption ceiling is set at Rs. 3 lakhs for senior citizens aged 60 to less than 80 and super senior citizens who are aged over 80 years are exempted up to ₹5 lakhs in a financial year. Consequently, in addition to the aforementioned critical points, here are five tax-saving options for elderly citizens that may be taken into account while investing in the current financial year.
Tax-free bonds are a wonderful alternative for senior persons who want returns that outperform inflation and want to get a respectable regular income. Since they are issued by organisations that are backed by the government and, as their name implies, interest income is tax-free making it risk-free investments for individuals in higher tax brackets.
Elderly folks can search for higher or stronger credit ratings, higher liquidity, and yield to maturity (YTM) return while investing in tax-free bonds issued for a term of 10 years or longer. NHPC Limited has been rated AAA by CARE with a STABLE outlook, AAA by ICRA, and AAA by IND with a STABLE outlook, demonstrating a significant level of financial stability. The bond has an annual coupon payment frequency of yearly, a YTM of 5.5236 per cent per annum, and a coupon rate of 8.67 per cent per annum.
Another bond is the tax-free National Thermal Power Corporation (NTPC) bond, which has received AAA ratings from both CRISIL and ICRA. The bond was issued on December 16, 2013, and it will mature on December 16, 2033. The bond has a YTM of 5.5007 per cent per year and a coupon rate of 8.66 per cent per year. Additionally, this bond has an annual payment duration. Investors should be aware that although interest on tax-free bonds is not subject to income tax, selling tax-free bonds after 1 year would be taxable as per your income tax slab and after 1 year will make you pay long-term capital gains tax at 10%.
Tax-saving fixed deposits are a type of investment that has a 5-year lock-in period and prohibits premature withdrawals until the account has reached maturity. Under section 80C of the Income Tax Act of 1961, tax deductions on tax-saving fixed deposits are available up to ₹1.5 lakhs per fiscal year. Senior citizens should take note of the fact that tax-saving fixed deposits offer triple benefits, including risk-free returns, tax deductions, and deposit safety by DICGC.
Tax saving FDs typically offer flexible interest pay-out options, such as monthly, quarterly, or reinvestment, however, interest earned would be taxable based on your tax slab. When interest payable or reinvested for elderly persons surpasses Rs. 50,000 in a fiscal year, TDS will be deducted by the bank. One can open a tax-saving FD either in a bank or post office. By opening a Post Office Time Deposit Account (TD) which also offers tax deductions, senior citizens can get 6.70% returns on 5 years of deposits and on the other hand, SBI is now offering an interest rate of 6.30% on tax-saving fixed deposits.
Senior citizens who want to get tax benefits under section 80C with higher returns than tax-saving FDs, can have a look at SCSS. A person over the age of 60 can establish this account at a post office by making a single deposit in the account in multiples of INR 1,000 with a maximum deposit of INR 15 lakh. Investments made under this scheme are eligible for tax benefits under section 80C. Currently, SCSS provides a taxable interest rate of 7.4% per year, which is much higher than the fixed interest rates offered by banks. Interest will be paid on a quarterly basis and will be applied from the date of deposit to the following dates: March 31, June 30, September 30, and December 31. If the total interest earned across all SCSS accounts surpasses Rs. 50,000 in a fiscal year, TDS would be deducted by the post office. SCSS comes with a maturity period of 5 years and after maturity, the account can be extended to a block of 3 years.
The National Pension Scheme (NPS) is a government-backed scheme because it is administered by the Pension Regulatory and Development Authority (PFRDA). The National Pension System (NPS) is a voluntary, retirement savings plan that provides a variety of investment alternatives and a choice of pension funds. The limit to joining NPS is 18 to 70 years, and it is an all-citizen savings scheme. A subscriber can receive a tax benefit under Section 80 CCD (1) up to Rs. 1.5 lac total under Section 80 CCE. Only NPS subscribers are eligible for an additional deduction for contributions up to Rs. 50,000 in NPS (Tier I accounts) under section 80CCD (1B).
Additionally, subscribers are qualified for a tax deduction on amounts withdrawn up to 25% of their own contributions. Additionally, NPS permits tax exemption on annuity purchases made after turning 60 or on superannuation under section 80CCD (5). However, section 80CCD (3) of the taxation system applies to the subsequent income received from an annuity. Furthermore, under section 10 (12A) of the Income Tax Act, subscribers are also eligible for a tax exemption on a lump-sum withdrawal of 60% of their total pension wealth when they turn 60 or reach superannuation.