Public provident fund, Senior Citizens Savings Scheme to National Pension Scheme: Best tax saving instruments for senior citizens

Income Tax 2024 for senior citizens: When talking about investment options for senior citizens, the first thing that comes to your mind is safe investment schemes with zero risks. There are many government-backed schemes that offer decent returns to senior and super-senior citizens. Some of the prominent ones are Senior Citizens Savings Scheme, National Pension Scheme, senior citizen bank FDs, RBI floating rate savings bonds, Atal Pension Yojana and Pradhan Mantri Vaya Vandana Yojana.  

Here’s a list of best tax saving instruments for senior citizens:

1. Senior Citizens Savings Scheme

This small savings scheme is one of the best investment schemes for senior citizens under which they can earn regular interest income. Senior citizens can invest a lump sum in the scheme, individually or jointly, and get returns at the rate of 8.2 per cent annually. It is a Post Office savings scheme.

Interests are payable on a quarterly basis and applicable from the date of deposit on March 31, June 30, September 30 and December 31.

Minimum deposit is Rs 1,000 and the deposits can be in multiples of 1,000. The maximum limit of investment is Rs 30 lakh in all SCSS accounts opened by an individual. The scheme has a lock-in period of five years for the principal amount. Premature withdrawal is allowed after the completion of one year but only after paying a penalty.

2. National Pension Scheme (NPS)

The National Pension Scheme (NPS), which was launched in 2004, is a market-linked pension plan that replaced the old pension scheme. NPS is administered and regulated by the Pension Fund Regulatory Authority of India (PFRDA). An Indian citizen in the age group of 18-70 can open an NPS account. The superannuation age in NPS is 60, however, individuals can continue until the age of 75.

NPS is beneficial for both pre-retirees and retirees. Pre-retirees can enjoy tax deductions on contributions. After retirement, senior citizens benefit from tax-free lump sum withdrawals, tax-efficient annuity income, and continued deductions.

NPS can reduce the tax burden after retirement through the provision of relief on both contribution and annuity repayments. Under NPS, retirees can opt for a regular annuity plan, guaranteeing a fixed income stream.

3. Tax Saver FDs

Most banks, public, private, small finance banks, offer attractive fixed deposit interest rates to senior and super senior citizens. These rates are marginally higher than those provided to the general public. The same benefit also applies when they invest in the Tax saver FDs, which allows tax exemption under u/s 80C. There is a lock-in requirement of 5 years in tax saver FD. Interest on tax-saver FDs is subject to taxes at a slab rate applicable for investors.

Senior citizen can also get loans against their senior citizen FD account at an interest rate that is between 0.25% and 0.75% higher than the standard interest rate.

4. Atal Pension Yojana (APY)

The pension scheme provides a fixed pension of Rs 1,000 to Rs 5,000 to people from the unorganised sector when they reach 60 years of age. The scheme also comes under the purview of the Pension Fund Regulatory and Development Authority (PFRDA). There are five pension plan slabs available under the scheme — Rs 1,000, Rs 2,000, Rs 3,000, Rs 4,000, and Rs 5,000 guaranteed by Government of India to the subscriber at the age of 60 years.

5. Pradhan Mantri Vaya Vandana Yojana

The LIC Pradhan Mantri Vaya Vandana Yojana is a pension scheme for senior citizens that assures guaranteed pension for 10 years.  Anyone who has attained a minimum age of 60 years can buy this policy. The policy term is 10 years. The minimum pension under the policy is Rs 1,000 for monthly payout, Rs 3,000 for quarterly payout, Rs 6,000 for half-year, and Rs 12,000 for annual payout.

6. Public Provident Fund (PPF)

Public Provident Fund is popular as it is one of the low-risk investment products available with attractive interest rate. At present, PPF offers a rate of interest of 7.10 per cent per annum. The government revises the rate of interest on PPF each quarter.

After 60 years, EPF investment stops for senior citizens, but they can still invest in the PPF to get high interest. It is also a good option due to its tax saving implication.

It is to be noted that investment in PPF, its interest and maturity amount all are exempted. PPF investments are eligible for a tax benefit u/s 80C. PPF comes with a lock-in requirement of 15 years.

Senior citizens can also get a loan against the PPF investment after the third financial year until the sixth financial year. After the sixth year of investment, the investors can make a partial withdrawal of funds from the accumulated corpus.

7. Equity-linked savings schemes

Mutual funds are the best investment options for most not just senior citizens. Investment in equity-linked savings schemes (ELSS) allows tax deduction benefits u/s 80C up to Rs 1.5 lakh in a financial year. ELSS has a lock-in period of 3 years. If senior citizens can take a little risk, SIP in ELSS can be wise investment call.

Also read: Income Tax 2024: Old Tax Regime slabs vs New Tax Regime slabs explained for senior citizens 

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