Old age need not be the end of your active life when it comes to spending your money wisely and saving on Income Tax. Typical components of income for Senior Citizens include pensions, HRA income, interest earned on Fixed Deposits, capital gains on assets, debt and equity instruments and income earned from business or profession. These must be accounted for in your online ITR forms
Senior Citizens and Income tax planning
According to 2011 Census data, the percentage of the elderly in India’s population rose from 6.0% to 8.0% between 1991 and 2011. This is owed to expansion in education, health infrastructure and consequent increase in expectancy of life.
Retired senior citizens need to plan their income taxes very carefully to maintain a continued flow of income and an accumulated sum to fall back on during health emergencies. If you are reasonably healthy and avoid regressive physical habits such as smoking, alcohol, overeating and so on, you end up increasing your liabilities. This is because you are likely to possess a longer lifespan to bear expenses over.
You can increase your tax savings by not letting them remain idle and investing in a balanced portfolio comprising of a fixed income alongside a portion in market-linked investments.
Income Tax Saving Instruments for Senior Citizens
- One of the safest and most popular investments is a Senior Citizen Savings Scheme offered by most post offices and banks to cut the rates on your annual income tax.
You can invest Rupees 15 lakh at the most but you are allowed to open more than one account.
Until September, 2017, the interest rate on SCSS was 8.3 % and attracts income tax under the head: ‘Income from other sources’. Your money will remain locked in for 5 years typically.
Those who retire before the age of 60 can also avail of these benefits provided they subscribe within 3 months of receiving their accumulated savings. Subscription to such a scheme is eligible for tax deductions on income according to Section 80C of the I-T Act.
- The Post Office Monthly Income Scheme is another attractive 5 year term deposit investment. If you hold a subscription with your spouse, then you can invest a maximum of Rupees 9 lakh in this instrument. If you hold the subscription alone then you can invest at the most Rupees 4.5 lakh here. Interest rates range between 7 and 8 percent in 2017. Interest earnings are taxable.
- Ordinary Fixed Deposits: These have been a popular investment vehicle for most retirees for a long time. Although interest rates on FDs are not as high in 2017 as they were some years ago, at over 7%, they continue to offer a better return on investment than other no-risk options. Only FDs with 5 year lock-in periods qualify for deductions under Section 80C and then only for the year in which the subscription is made. However, banks allow you to offset tax outgoes for the remaining part of the tenure by increasing the effective rate of interest on the FD. This instrument is also typically more flexible in terms of tenure and liquidity of invested funds.
Interest earnings are taxable.
- Mutual funds offer a slightly more risky but more inflation-adjusted avenue of investment for parked funds. You should choose a limited percentage of your retirement corpus for this purpose and prefer a mix of large-cap and balanced equities to others. Long term debt Mutual Funds if retained for over 3 years are taxed at 20% post indexation. If you fall in the topmost tax bracket, then this is the preferred choice over bank deposits which attract an income tax rate of 30.9% for the uppermost category.
- Life annuity or retirement plans offered by life insurance providers offer regular incomes (income tax liable) in return for a one-time deposit or deposits in instalments for a contractually fixed period. This instrument is handy when you expect to outlive the tenure of ordinary investments mentioned above. The period of subscription usually ranges from 10, 15, 20 and so years. But once you invest your capital, although you earn interest you cannot take it back.
Upon receipt and assessment by tax authorities, you may obtain income tax refunds if deductions and exemptions have been properly filled and submitted. CA assisted tax return efilings are the best fit for you if you possess multiple sources of income. AllindiaITR is one such online platform. Owned and promoted by Corwhite Solutions Private Limited, it is also the producer of one of the most successful efiling tax apps for smartphones in the country.