Tax-saving instruments for senior citizens
If you have crossed the age of 60, you are a senior citizen. There are several advantages when you reach this stage in life, primarily a higher interest rate on fixed deposits and some other investments. However, even after retirement, senior citizens still have to pay taxes each year. This is why it is necessary to find out the best tax-saving instruments to minimise the tax outgo once you retire.
Here are some of the way to minimise tax liabilities:
- Tax-saving Fixed Deposits
This is a type of Fixed Deposit where you can get a tax deduction on investments under Section 80C of the Income Tax Act. Senior citizen investors can claim a maximum deduction of Rs 1.5 lakh per year by investing in these Tax-Saving Fixed Deposits.
Bank Fixed Deposits are popular choices among senior citizens because once you invest in an FD, you can cash the interest on a monthly, quarterly or yearly basis. The lock-in period is five years, and the best part is that senior citizens receive a higher rate of interest on their deposit. This gives an additional push to increase savings.
Looking to apply for a Fixed Deposit? Click here.
- Senior Citizen’s Saving Scheme (SCSS)
The SCSS is another popular investment option among retirees. This scheme is available for senior citizens as well as early retirees. You can avail of this product from any post office or bank in the country. This scheme has a five-year tenor. However, it can be extended by another three years after the plan matures.
While the upper limit is Rs 15 lakh, investors can open multiple SCSS accounts if they want to invest more. Investments in this scheme are eligible for a tax deduction of Rs 1.5 lakh under Section 80C of the Income Tax Act. You can also open HDFC Bank Senior Citizens Account and avail of wide range of benefits.
- Public Provident Fund
When it comes to Tax-Saving, Public Provident Fund (PPF) is among the most popular investment schemes available for senior investors. It is a safe investment avenue, since the Indian Government issues the PPF. Each year, you can save up to Rs 1.5 lakh by investing in PPFs. The best part about a PPF is its longevity. PPF accounts have a tenure of 15 years that can be extended indefinitely in five-year blocks. HDFC Bank offers a wide variety of tax-saving instruments such as PPF, fixed deposits and National Pension Scheme (NPS) that are ideal for retirement planning.
- Tax-free bonds
Tax-free bonds are a good fit in a senior citizen’s portfolio. Government-backed institutions, such as the Power Finance Corporation (PFC), Rural Electrification Corporation (REC) and the National Highways Authority of India (NHAI), among others, issue bonds. They come with high safety ratings and the interest you earn is tax-free.
- Equity Linked Savings Schemes
Investing in Mutual Funds might be a risky proposition for senior citizens. But with life expectancy on the rise, it is common for people to live till 85 years or more. If you retire at the age of 60, you have another 25 years at least to invest and save taxes. This is why Equity Linked Savings Schemes (ELSS) are an excellent choice if you are interested in high returns and great tax benefits. The basic idea of investing in ELSS funds at this stage is to earn steady returns rather than volatile returns. For this, you might want to consider diversifying your portfolio across large-cap funds or balanced funds. This can help you earn good returns at a minimum exposure to risk. When it comes to tax benefits, investments in ELSS funds qualify for tax deductions up to Rs 1.5 lakh under Section 80C.
Conclusion
Retirement means spending more time with your family, travelling around the world and having a good time. By investing your money in tax-saving financial instruments, you not only take care of your income needs but also reduce your tax burden each year.
* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.