With the commence of each economic year, folks commence exploring all the obtainable tax-saving possibilities to avail deductions of up to Rs 1.50 lakh below Section 80C of the Income Tax Act, 1961. However, even with an early commence, they somehow get stuck in the last-minute rush, which usually outcomes in investors producing incorrect choices and picking out plans that may possibly not be the finest match for them.
Sometimes investors also endure mainly because economic solution distributors and agents — in a bid to maximize their commissions — sell solutions unfairly, and/or do not definitely care to have an understanding of the demands of investors.
There have been a couple of situations in the previous exactly where relationship managers of reputed private sector banks have sold single premium assured return schemes to senior citizens in the type of extended-term fixed deposits (FDs) bundled with insurance coverage. These sorts of acts have an effect on the senior citizens’ economic wellbeing.
Serious about retirement preparing? Avoid life insurance coverage
Senior citizens hunting for strategies to save tax ahead of the finish of the economic year are advised to stay clear of any life insurance coverage solution. Life insurance coverage is very important only in your accumulation phase. You are in the accumulation phase when you are the most important earner, and you have responsibilities towards the dependent members of your family. However, when you are retired and a senior citizen, your duties are automatically transferred to dependents.
Your priorities in the course of this stage of life will be capital safety, typical earnings generation, and managing costs connected to healthcare and retirement. Thus, even though browsing for schemes to save tax, constantly preserve these prime priorities in thoughts to effectively meet your liquidity needs. You can go with plans either getting a quick lock-in period or with one that provides decent returns with typical returns.
Equity Linked Savings Scheme (ELSS)
If we take a look at tax-saving plans that are obtainable for senior citizens, Equity Linked Savings Scheme (ELSS) — also recognized as tax-saving mutual funds — shines brighter with its least lock-in period of 3 years. ELSS also has the prospective to offer you superior marketplace-linked returns more than the period of 3 years. Thus, you can decide on an ELSS fund meticulously soon after thinking about various quantitative and qualitative aspects.
Compared to other fixed earnings tax-saving plans like National Savings Certificate (NSC), tax-saver bank FD, Public Provident Fund, and so forth, ELSS has the prospective to yield far better marketplace-linked returns in 3 years. However, a retiree need to stay clear of the Systematic Investment Plan (SIP) way to invest in ELSS, mainly because every of your SIP installments will be topic to a lock-in period of 3 years. Instead, take into account producing a lump sum investment in ELSS.
When the lock-in period in ELSS is comprehensive, the quantity can be withdrawn by way of the Systematic Withdrawal Plan (SWP). This is a facility provided by mutual fund homes, which generates a money inflow stream to meet retirement costs.
Apart from ELSS, getting investment in 5-year Tax-saver Bank FD as nicely as in Senior Citizen Savings Scheme (SCSS) will also be a excellent solution for stability and diversification purposes. Tax-saving FDs can’t be prematurely encashed ahead of completion of at least 5 years from the date of receipt. But this lock-in is superior in a way to preserve the funds protected and steady.
In Tax Saver FD you can invest a minimum quantity of Rs one hundred or its multiples, with a maximum limit of Rs 1.50 lakh in a economic year. The noticeable factor is that the interest price varies amongst banks.
A retiree can take into account the Quarterly Interest Payout Plan or Monthly Interest Payout Plan as per liquidity demands and fund retirement costs. The deposit can be made in one name or jointly, but the noticeable factor is that, if it is held in a joint holding, the section 80C deduction advantage is obtainable only to the initial holder who has a PAN (Permanent Account Number).
Senior Citizen Savings Scheme (SCSS)
Similarly, the Senior Citizen Savings Scheme (SCSS) is also a superior tax-saving solution for retirees. It is government-backed, and especially created for the empowerment and economic safety of senior citizens. Additionally, it provides an interest price of 7.40% per annum. It can be opened in an person capacity or jointly with your spouse. The nomination facility is obtainable ahead of and soon after opening the account.
The maximum lump sum deposit permitted below SCSS is Rs 15 lakh and the minimum is Rs 1,000. It is also eligible for deduction up to Rs 1.50 lakh per annum below section 80C and interest earned below SCSS is payable on a quarterly basis and is exercisable from the date of deposition till March 31st / June 30th / September 30th / December 31st. However, make sure to claim the interest on time to earn further.
While the interest earned is taxable, interest earned on bank deposits is exempt up to Rs 50,000 annually, as per the provisions of section 80 TTB. For senior citizens aged in between 60 and 80 years, the exemption limit is Rs 3 lakh, and for more than 80 years it is Rs 5 lakh.
Union Budget 2021 & Health Insurance
Citizens aged 75 years and above do not have to file their earnings tax return soon after the Union Budget 2021 if pension and interest earnings is their only supply of annual earnings. For a far better tax-saving portfolio, you can comply with 80:20 or 75:25 allocation to ELSS and the non-marketplace linked tax-saving plans.
You can also take a wellness insurance coverage cover. Meanwhile, if there are particular illnesses and problems, you can avail a deduction of Section 80DDB of Rs 1 lakh or the actual quantity spent, whichever is much less. Similarly, for these who are engaged in charity, can avail deduction below section 80G of the Income Tax Act, 1961. Thus, program your tax-saving investment wisely.
It’s a quite thoughtful procedure to decide on your retirement plans and for senior citizens, it need to be a quite severe choice, as it is quite vital for the life coming ahead.
(By Amit Gupta, Co-Founder and MD, SAG Infotech)