Tax-Saving Tips For Senior Citizens

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Nearing retirement, it is crucial that we shift our focus towards ensuring financial stability and especially towards maximizing savings. In the absence of a fixed source of income, such as salary, it is our savings that play an essential role in helping us gain financial independence post-retirement. That being said, there are different pension plans and other smart saving plans that can help senior citizens maximize returns on their investment while earning significant tax-saving benefits.

Here are a few tips to help seniors make the best use of their retirement corpus while keeping their tax liability at a minimum –

1. Open a Five-year Fixed Deposit

Five-year Fixed Deposits (FD) or Tax-Saving FDs provide wealth creation and tax-saving opportunities without any investment-related risk. Most financial banks offer a higher rate of interest to senior citizens. As the name suggests, five-year FDs have a lock-in period of five years (the maximum booking period of these FDs is ten years.) You cannot make any pre-mature withdrawals before the completion of the lock-in period. Moreover, five-year Fixed Deposits provide tax deductions of up to 1.5 lakh on your contributions towards the scheme under Section 80C of the Income Tax Act 1961.

2. Invest in SCSS

Senior Citizen Savings Scheme or SCSS is essentially a fixed income saving scheme, which offers exclusive benefits to senior citizens (aging 60 years and above.) SCSS offers the Under SCSS; seniors can save up to Rs 15 lakhs for a maximum period of 5 years, with an option to further extend the policy tenure by three years (on completion of the first five years). Investment into SCSS is eligible for tax deduction under Section 80C; however, the interest earned on the investment is subject to taxation as per the applicable tax rates for senior citizens. Regardless of this, SCSS offers the highest returns (post-taxation) among available fixed-income taxable investment instruments.

3. Purchase Health Insurance Coverage

Our health usually deteriorates with age, as we become more vulnerable towards all sorts of medical conditions. Post-retimrent, thus, seniors need the financial protection of health insurance coverage against medical expenses, which are generally high for senior citizens. Moreover, the premium paid towards health insurance is eligible for tax deductions under Section 80D of the Income Tax Act 1961. Thus, senior citizens can avail tax savings up to Rs 50,000 on the premiu paid towards their health plan.

4. Invest in Post Office Monthly Income Scheme

MIS, or the post office monthly income scheme, is one of the best tax saving schemes for senior citizens. POMIS is a low-risk savings scheme that helps seniors avail of a steady and reliable monthly income to take care of their post-retirement lifestyle. At the same time, this scheme offers tax-saving benefits under Section 80C, along with other popular Post Office savings schemes for senior citizens including –

• Post Office Saving Account
• Post Office Time Deposit Account (TD)
• Post Office Monthly Income Scheme Account (MIS)
• 15-year Public Provident Fund Account (PPF)
• National Savings Certificates (NSC)

5. Contribute towards National Pension Scheme (NPS)

While individuals aging between 18 and 65 years can invest in the National Pension Scheme (NPS), senior citizens have the option of extending the investment tenure until they reach 70 years of age. Another benefit of investing in NPS is that senior citizens can avail of an additional tax deduction of up to Rs 50,000 on their contribution under Section 80CCD – taking their overall tax deductions up to Rs 2 lakh (under Section 80C and Section 80CCD).

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There are various options for senior citizens to maximize their financial stability through low-risk investments. At the same time, these investments offer significant tax-saving benefits to the seniors to enjoy their life post-retirement without worrying much about tax implications.