Most people retire between 50 and 60 years of age with a limited monthly income in their accounts as pension. However, they still have to pay taxes. With a fixed income and a higher set of responsibilities as they age, life after retirement can be difficult financially if not planned properly. To save oneself from financial burden later on in life, there are many schemes available in which people can invest and enjoy tax saving as a senior citizen.
Here are the top 7 of such tax-saving pension schemes:
1. National Pension System (NPS)
National Pension System is a voluntary pension scheme launched by the Central Government to offer financial security to people after their retirement. Counted among the most preferred tax saving schemes in India, NPS is open to both salaried and self-employed individuals from public, private, and unorganised sectors. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
The participants of this scheme are required to pay a certain amount at regular intervals while they are employed towards investment in a pension account. Once they retire, they can take out up to 60% of the amount, which is tax-free. The remaining amount is received as monthly pension.
National Pension System offers tax benefits under Section 80C and Section 80CCD, making it one of the most preferred tax saving schemes for senior citizens.
2. Public Provident Fund (PPF)
When it comes to retirement planning, Public Provident Fund is one of the first schemes that come to mind. PPF is a low-risk investment scheme that offers stable returns after retirement. This plan has been made mandatory by the government, and therefore, it offers guaranteed returns on the principal amount. Regulated by the Indian Government, Public Provident Fund is among the safest income tax saving schemes in India.
PPF is a long-term investment plan that requires individuals to invest for a minimum of 15 years. This period can be further extended in blocks of 5 years, an indefinite number of times. People can invest a minimum of Rs 500 and a maximum of Rs 1,00,000 in this scheme in a year. Moreover, they can deposit the amount once a year or in a maximum of 12 instalments, according to their preference.
By investing in PPF, individuals can enjoy interest of around 7.1% (subject to change as per government rules), which is tax-free. The whole amount invested under PPF can be claimed for tax waiver under Section 80C of the Income Tax Act of 1961. Owing to this, PPF is the most profitable tax saving scheme for senior citizens.
3. Tax-Saving Fixed Deposits
It is common knowledge that fixed deposits are a safe, low-risk investment option for people of all ages. However, senior citizens enjoy more benefits on FDs, such as higher interest rates and tax exemptions. FD plans are offered by financial institutions such as banks, NBFCs (Non-Banking Finance Companies), and HFCs (Housing Finance Companies).
There are multiple types of FDs available today, out of which, a popular choice for senior citizens is tax saver FD. The minimum lock-in period in tax saving FDs is 5 years. Senior account holders can file for tax exemption under Section 80C of up to Rs 1,50,000.
4. Voluntary Provident Fund (VPF)
As evident from the name, Voluntary Provident Fund is a voluntary investment option for salaried individuals. Through this scheme, employees can choose to contribute to their PF account beyond the mandatory 12% contribution. They can invest up to 100% of their basic salary and DA in the Voluntary Provident Fund.
VPF comes under the best tax saving schemes as it is an EEE category plan (which means it is exempt on contribution, exempt from the principal, and exempt on interest). Other benefits of investing in VPF are:
i. High interest of 8.5% per year (subject to change)
ii. Risk-free investment option with guaranteed returns
iii. Ease of transfer from one employer to another
5. National Saving Certificate (NSC)
National Saving Certificate is another lucrative tax saving option for senior citizens that offers a fixed return of 6.8% (revised every quarter) and a regular income. It is a scheme launched by the Government of India for individuals who are looking for a low-risk investment option. National Saving Certificate can be bought from a post office for an individual, a minor, or by two people as joint account holders. This scheme has a maturity period of 5 years.
Investors of NSC can enjoy a tax exemption of up to Rs 1,50,000 under Section 80C, making it one of the top tax saving schemes in India.
6. Post Office Time Deposit
The Indian Post Office offers multiple saving schemes for citizens to invest in, for working individuals as well as senior citizens. Under the Small Saving Schemes issued by India Post comes Post Office Time Deposit, also known as National Savings Time Deposit Account. Interested people can buy this online or by visiting the nearest post office.
It is a decent saving scheme for those who wish to begin with small amounts of money, as low as Rs 1,000, and are looking for a low-risk investment option.
Post Office Time Deposit is one of the safest tax saving schemes for senior citizens as it allows tax exemption on amounts of up to Rs 1,50,000. However, tax benefits can only be claimed after a deposit period of 5 years.
7. Senior Citizen Savings Scheme (SCSS)
Senior Citizen Saving Scheme or SCSS is a plan especially designed for senior citizens to maximise their savings. Only citizens above the age of 60 and retired Defence personnel above the age of 50 are eligible to invest in this scheme. This tax saving scheme can be opened by senior citizens at a nearby post office or bank. The lock-in period is 5 years which can further be extended by 3 years upon maturity. The depositors can invest the amount received upon retirement (maximum amount of Rs 15,00,000).
The Senior Citizen Saving Scheme is a good choice for savings as it offers a good interest at 7.4% per annum. Another reason to invest in a Senior Citizen Saving Scheme is the tax benefits it offers. Depositors can claim tax exemption on an amount of up to Rs 1,50,000 under Section 80C of the Indian Tax Act, 1961. However, the interest earned on the capital is taxable.
Retirement planning is a crucial step in the life of all people, and investing in pension or income schemes is the best way to prepare for life after retirement in a systematic and hassle-free way. At Emoha, taking care of elders extends beyond the services we offer; we focus on sharing useful information that genuinely helps and also gives a sense of inclusiveness and community living. For us, it is always #EldersFirst