As the new fiscal year approaches, senior citizens seek ways to save on taxes while securing their financial future. They need investments that provide risk-free returns and enable them to enjoy their retirement life. The world of taxes and investments can be complicated, and it’s crucial to thoroughly understand the options available and how to use them to achieve the desired result. In this blog, we will explore 5 tax-saving instruments that are particularly useful for senior citizens in FY2023.
Tax-saving Fixed Deposit
Banks and post offices offer tax-saving fixed deposits with a 5-year lock-in period. They offer appealing interest rates on tax-saving FDs. Currently, bank rates range from 6.2% to 8.1%, while those at the post office are 6.7%. Note that the interest earned on these FDs is taxable, and early withdrawal is not allowed. You can easily estimate the interest gains and FD maturity amount by using an FD calculator online.
Senior Citizen Saving Scheme (SCSS)
SCSS is a government-backed retirement savings plan for those over 60. It generates a 8% annualised quarterly income and qualifies for tax deductions under Section 80C of the Income Tax Act. The investment limit is capped at Rs. 15 lakhs with a maturity period of 5 years, which can be extended by 3 years. It offers the highest post-tax returns compared to other government-offered fixed-income options and is regarded as a secure and reliable income plan for senior citizens.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
This is a retirement-cum-pension scheme managed by the LIC. It guarantees a monthly pension at an annual rate of 7.4%. You can invest a minimum of Rs 1.5 lakhs and a maximum of Rs 15 lakhs for 10 years. The investments are eligible for tax benefits under Section 80C, but the interest earned in this scheme is taxable.
National Pension System (NPS)
The NPS is a government-backed pension plan for all Indian citizens to save for retirement, including those in the unorganised sector. It allows regular contributions throughout the working years. Upon retirement, a portion of the total invested funds can be withdrawn as a lump sum, and the remaining can be used to purchase an annuity for ongoing income. Investments up to Rs 1.5 lakhs qualify for tax deduction under Section 80CCD (1), and additional investments up to Rs. 50,000 (over and above Rs. 1.5 lakhs) under Section 80CCD (1B).
Public Provident Fund (PPF)
PPF is a long-term savings scheme that has gained popularity among investors due to its benefits and flexibility. The interest earned and maturity amount are tax-free, making it a safe and secure investment option for senior citizens. The minimum deposit that can be made in a financial year is Rs. 500, and the maximum deposit is Rs. 1.5 lakhs. The prevailing interest rate is 7.1% p.a. and the lock-in period is 15 years with a 5-year extension option.
By considering the above options, senior citizens can make informed decisions and secure their financial future while reducing their tax burden. However, it is important to consult a financial advisor and review the tax laws, regulations, and the budget announcement of the financial year before investing in any of these instruments.
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