After decades of hard work, retirement is a time to sit back and relax. Most senior citizens however are concerned about either financial stability or tax liabilities, especially if they have an accumulated corpus. Tax saving can be a tricky deal and sometimes is left neglected. However, with the right knowledge about tax-saving tips and investments, they can not only just save taxes but also earn additional income.
Financial tools like tax-saving investment plans and senior citizen health insurance can help in tax deduction following the outlines of Section 80C of the Income Tax Act. But despite these benefits, many people still refrain from investing due to lower returns and associated risks. This article will help senior citizens with practical suggestions about tax-saving investments and decisions.
Tax-free gains and income: Smartly investing will help you reduce taxes and help you earn tax free income too. Investment gains are different for everyone and hence, it is essential to plan well and assess the situation. Making investments early in the year can help you earn more.
Know what is right for you: As you start researching on investment instruments and plan, you would come across a myriad of options. But you must know how to choose what the best is? Different investments have different benefits and hence, be sure you factor in all the clauses to pick the right one. It is also essential to look for the number of returns and long-term benefits.
Understand rules and regulations: Understanding the rules and conditions of taxes and investments goes a long way in tax planning. Those who are investing or purchasing insurance to get tax benefits should be aware of all the related parameters as per Sections 80C and 80D and the maximum limits allowed.
Invest in a health insurance policy: Besides providing the much-required financial security against medical emergencies, a health insurance plan also offers tax benefits. Purchasing senior citizen health insurance is a smart way to reduce taxes on premiums paid under Section 80D. You can save money and safeguard your health against the rising costs of hospitalisation.
Understanding tax deduction under Section 80D: As per the taxation policy, senior citizens can not only get a rebate in tax for purchasing senior citizen health insurance but there is also an additional provision for super senior citizens. If you are a senior citizen above the age of 80 years and still don’t have health insurance, you can get a rebate of upto Rs 50,000 for availing health checkups and medical treatments.
Split the premium payment and avail tax deduction: As per the Income Tax Act, spouses are allowed to split the premium that pays for family insurance plans. So, if you and your spouse, both are working and come under the taxable limits, both can avail tax deductions for the premium amount paid. Now if you and your spouse buy separate health insurance plans as well, you can get tax deductions for that as well, under the permissible limits of Section 80D. Note that to get the benefit of splitting the premium amount and getting tax benefits on the same, both you and your spouse must produce a tax certificate.
Invest in Senior Citizen Saving Scheme: Besides senior citizen health insurance, senior citizens can make use of other saving plans meant for them. A Senior Citizen Saving Scheme is a popular instrument for investment for those who are above the age of 60 years. It offers a regular income and can be purchased individually or jointly at a commercial bank or post office. It offers the highest tax returns and can be purchased for a maximum of 5 years.
Invest in fixed deposits: Five-year fixed deposit plans offer the double benefit of generating income as well as saving taxes. So, if you are a senior citizen, opting for a fixed deposit scheme for five years can offer a higher rate of interest. One, your money will remain invested without any market risks. And though nominal, the corpus will still generate some positive returns.
Invest in National Pension Scheme (NPS): The money that you invest in the scheme, is invested in a wide range of investment options to generate returns. You can put your money during your working years as well as after 60, as the upper age limit for joining NPS is 70 years. You can make a maximum investment of Rs 2 lakhs. On retirement, you can withdraw a part of it and use the remaining part to invest in an annuity that will provide you with a secured and regular income. Now the investment you make under NPS is eligible for deduction under the umbrella limit of Rs 1,50,000 under Section 80C
Now that you are aware of several such instruments that can help you save taxes and the factors that you should take into consideration while choosing tax-saving plans, you can plan your retirement well. Try to balance the need for creating a post-retirement corpus with the objective of tax planning. In the process, there are some investments that you will have to make keeping in mind the return and your current age. While on the other hand, keep a tab of other financial options you put your money on – like senior citizen health insurance. You may buy one to meet your medical needs, but you mustn’t miss out on its dual benefits of medical cover plus tax savings. Likewise, research well on your big expenses as well and see if you can get any tax benefits out of them.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.