Senior citizens should look into investment options that not only provide risk-free returns but also allow for tax deduction as tax planning is an important component of saving on building wealth in the golden years. One should start tax-saving at the beginning of the new financial year, without considering last-minute tax-savings to meet personal financial objectives. Taxpayers can choose the new tax regime for the financial year 2022–2023 or continue with the old regime, and the basic exemption limit is Rs. 3 lakhs for senior citizens below 60 to 80 years of age and very senior citizens above 80 years of age exempted 5 lakh in a financial year. Consequently, apart from the above important points, here are five tax-saving options for elderly citizens that can be kept in mind while investing in the current financial year.
5 Year Tax Saving Fixed Deposit
Tax-saving fixed deposit is a type of investment that has a lock-in period of 5 years and restricts premature withdrawal till the account reaches maturity. Under section 80C of the Income Tax Act of 1961, tax deduction on tax saving fixed deposits is . available up to 1.5 lakh per financial year. Senior citizens should take note of the fact that tax-saving fixed deposits offered by DICGC offer triple benefits including risk-free returns, tax deduction and deposit protection.
Tax saving FDs usually offer flexible interest payment options like monthly, quarterly or reinvestment, however, the interest earned will be taxable depending on your tax slab. When interest or reinvestment payable to older persons exceeds Rs. 50,000 in a financial year, TDS will be deducted by the bank. You can open a tax saving FD in a bank or post office. By opening a Post Office Time Deposit Account (TD), which also offers tax deduction, senior citizens can get 6.70% return on 5-year deposits and on the other hand, SBI now offers an interest rate of 6.30% on tax-saving fixed deposits. is offering. Deposit.
Senior Citizen Savings Scheme (SCSS)
Senior citizens who want to avail tax benefits under Section 80C with returns higher than tax-saving FDs can take a look at SCSS. A person above 60 years of age can set up this account at the post office by depositing a maximum of Rs 15 lakh in multiples of Rs 1,000 at a time. Investments made under this scheme are eligible for tax benefits under section 80C. Currently, SCSS offers a taxable interest rate of 7.4% per annum, which is much higher than the fixed interest rates offered by banks. Interest will be paid on quarterly basis and will be applicable from the date of deposit on the following dates: 31st March, 30th June, 30th September and 31st December. If the total interest earned in all the SCSS accounts exceeds Rs. 50,000 in a financial year, TDS will be deducted by the post office. SCSS comes with a maturity period of 5 years and the account can be extended for a block of 3 years post maturity.
National Pension System (NPS)
National Pension Scheme (NPS) is a government-backed scheme as it is administered by the Pension Regulatory and Development Authority (PFRDA). The National Pension System (NPS) is a voluntary, retirement savings scheme that offers a variety of investment options and a choice of pension funds. The limit to join NPS is 18 to 70 years, and it is an all-citizen savings scheme. A subscriber can avail tax benefits under section 80CCD(1) up to Rs. Total 1.5 lakh under section 80CCE. Only NPS subscribers are eligible for additional deduction for contributions up to Rs. 50,000 in NPS (Tier I account) under section 80CCD (1B).
Additionally, subscribers are eligible for tax deduction on the amount withdrawn up to 25% of their own contribution. Additionally, NPS allows tax exemption under section 80CCD(5) on annuity purchases made after 60 years of age or on retirement. However, section 80CCD(3) of the taxation system applies to subsequent income derived from an annuity. Further, under Section 10(12A) of the Income Tax Act, subscribers are eligible for tax exemption on lump sum withdrawal of 60% of their total pension wealth on reaching 60 years of age or retirement.
tax free bond
Tax-free bonds are a great option for senior individuals who want better returns than inflation and a respectable regular income. Since they are issued by organizations that are backed by the government and, as their name suggests, the interest income is tax-free, making it a risk-free investment for individuals in higher tax brackets.
Elderly people may seek higher or stronger credit ratings, higher liquidity, and yield to maturity (YTM) returns when investing in tax-free bonds issued for tenors of 10 years or more. NHPC Limited has been rated AAA with Stable outlook by CARE, AAA by ICRA and AAA by India with Stable outlook, demonstrating a significant level of financial stability. The bond has an annual coupon payment frequency of annualized, YTM of 5.5236 percent per annum, and a coupon rate of 8.67 percent per annum.
Another bond is the tax-free National Thermal Power Corporation (NTPC) bond, which has got AAA rating from both CRISIL and ICRA. The bond was issued on December 16, 2013, and will mature on December 16, 2033. The bond has a YTM of 5.5007 percent per annum and a coupon rate of 8.66 percent per annum. Additionally, this bond has an annual payout period. Investors should be aware that though interest on tax-free bonds is not subject to income tax, selling tax-free bonds after 1 year will be taxable as per your income tax slab and after 1 year you will receive long term capital gains. Will have to pay tax. at 10%.