You must understand that financial planning is crucial at every stage of life, even for senior citizens. For senior citizens, tax savings is not just about reducing their financial burden but also about making smart decisions that ensure their money lasts as long as possible. Here are ways senior citizens can save on taxes.
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By tax filing
1. Higher Tax Exemption Limit: Senior citizens aged 60-80 enjoy a higher exemption limit of Rs 3 lakh compared to Rs 2.5 lakh for those below 60. The exemption limit for senior citizen at age 80 and above is even higher, which is at Rs 5 lakh. This helps them to lower their taxable income.
2. Deductions Under Section 80TTB: Section 80TTB of the Income Tax Act (the Act) allows senior citizens to claim a savings deduction of up to Rs 50,000 per year on interest earned from deposits with banks, co-operative societies or post offices. This deduction exceeds the Rs 1.5 lakh deduction available under Section 80C.
3. Utilize the Standard Deduction: Senior citizens can benefit from the standard deduction of Rs 50,000, which was introduced in the Budget 2020. It applies to pensioners even if they aren’t employed, helping ease the tax burden.
By making investments
4. Health Insurance Premiums: Senior citizens can avail higher deductions for health insurance premiums under Section 80D. They can deduct up to Rs 50,000 a year for health insurance premiums paid for themselves or their spouse, higher than the Rs 25,000 limit for those below 60.
Further, under section 80DDB, the maximum deduction for medical treatment of a dependent older than 60 years or a super senior citizen above 80 years is Rs 1 lakh for tax purposes.
5. Senior Citizen Savings Scheme (SCSS): It is a government-backed savings scheme specifically designed for senior citizens aged 60 years and above.
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It offers a secure and attractive investment avenue with a fixed interest rate, payable quarterly. The scheme offers a high-interest rate of 8.20% as of March’s end quarter and tax deductions up to Rs 1.5 lakh under Sec 80C.
6. Public Provident Fund (PPF): When you make contributions to PPF account, you become eligible for tax deductions under Section 80C of the Act. The interest earned and the maturity proceeds are tax-free, making PPF a tax-efficient savings instrument. You can secure investment with guaranteed returns of 7.1% as of March end quarter, tax-deductible contributions (Rs 1.5 lakh under Sec 80C), and a 15-year lock-in for long-term wealth creation.
7. National Saving Certificate (NSC): NSC entails relatively low risk and has a tenure of up to 5 years. With annual compounding, the interest accrues and is disbursed to the investor and the principal upon maturity without any upper limit. Tax benefits are accessible under Section 80C of the Income Tax Act, permitting deductions each year when the interest is reinvested. However, the sole taxable element is the final payout.
8. Tax-saving Fixed Deposits: Senior citizens can also invest in regular fixed deposits offered by banks. These fixed deposits typically have a lock-in period of five years and provide tax benefits under Section 80C, similar to other tax-saving instruments. While the interest earned on these deposits is taxable, senior citizens can benefit from higher interest rates than regular depositors.
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With these investment avenues, senior citizens can effectively manage their taxes and save more in their golden years. However, it’s always good to consult a tax consultant or financial advisor to help you understand these exemptions better and plan your taxes optimally.
