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Guide To Tax Saving For Senior Citizens

Guide To Tax Saving For Senior Citizens

Tax saving for senior citizens
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Taxes are an essential instrument for the functioning of the state, as they are collected by the Government of India to use in development projects in the country and for providing for defense and healthcare services. The taxpayers of the country comprise of individuals, firms as well as institutions that earn and spend money.

Any person earning an income above a basic exemption limit prescribed by the government is liable to file an Income tax return. But regardless of the tax liability, one has to file tax returns for any particular fiscal year in which your earnings exceed the prescribed limit. However, there are various options to reduce your Income-tax liability through tax saving plans.

Tax liabilities for a retired person

After retirement, most of us often stop earning a regular income but any other form of income including pension and interest from fixed deposits, bonds and capital gains are still taxable. This means, while the income officially stops, one does not stop paying taxes even after retirement.

Considering, this is a life stage where ones risk appetite will be typically low and their focus would be on ways to streamline their income for a peaceful life. Experts recommend avoiding non-liquid instruments for investment at this stage, and prioritize suitability of the product. Investing in a product with a long lock-in period just to save tax could be a challenging.

Also, if you have your children settled with no financial dependency on you by now, a pure life cover plan may hold less importance for you. So, you might instead focus on investing in a guaranteed return plan and health insurance products to help you steer through your retirement years.

While fixed deposits and Senior Citizen Savings Schemes may seem like the safest investment options, you must not make the mistake of avoiding equity all together. Though the first two can save you tax under the 80C basket, investing about 15-25% of your total portfolio in equity can help fill in any gaps and invest in products that are in line with your financial needs and fit your portfolio.

You need to know about - Is Pension Taxable?

An Ideal retirement portfolio

For the purpose of retirement for your retirement, you want your investment returns to provide you with a regular income or an accumulated lump sum post-retirement. While most investments may offer only one of these benefit payouts, these are some that can give you the best of both.

It depends on your situation, if you are a pensioner with a regular income coming in, you might not need to focus on the first benefit and you can consider directing your funds towards an instrument that helps you accumulate wealth over time.

However, in case of individuals who were salaried or self-employed before their retirement, and may not receive a pension, might want to have a portfolio of investments which provide a regular income over a period of time. Hence, an ideal portfolio may depend on the person’s need after retirement and it is a great idea to plan and have your investment portfolio options ready before hand.

Click here to Use - Retirement Calculator

Tax Saving Options for Retired Individuals

For a stress-free retirement, all we desire is the presence of a monthly salary to be able to manage your regular expenses. Opt for annuity schemes that not only provide regular income in your retirement days but also help save on taxes. In addition, unit-linked plans also help build a sustainable retirement corpus, along with saving taxes on your accumulated money as it offers tax-free withdrawals to help replace your taxable pension.

Annuity Schemes Unit-Linked Insurance Plans
Eligible for tax benefits under Section 80C of the Income Tax Act Eligible for tax exemption of up to Rs.1.5 Lakh on premiums under Section 80C
Allows premature withdrawals, to meet important financial exigencies Allows premature withdrawals, to meet important financial exigencies
No tax is charged on invested money until you plan to withdraw it Withdraw tax-free proceeds at maturity under Section 10D

You can invest in the above mentioned tax-saving instruments to avail benefits under section 80C of the Income Tax Act and beyond. Senior citizens can avail benefits under lesser income tax slab rates compared to other citizens. In addition to these investment options, a health insurance policy can also provide tax benefits on the premium paid under Section 80D along with enjoying a financial security against rising hospitalization costs.

Must Read - Income Tax Slab For Senior Citizen

Retirement is indeed a time to relax and live stress-free after all the years of hard work you have put in for a peaceful retired life. Making thoughtful investments is an important way to make the best use of your accumulated retirement corpus that would help keep your tax liability at bay.

Speak to an insurance specialist now!

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