Retirement marks the end of one s earning period and what one seeks after this point is to make the best use of the retirement corpus and minimise the tax liability. Building a portfolio with the right mix of fixed income and market-linked products becomes a challenge for the retirees. This tax season, let s look at some hassle-free investment options that can help build wealth and offer tax benefits.
1. Senior Citizens Saving Schemes (SCSS)
This scheme is specifically designed for Indian citizens above the age of 60 years. The age bar has been relaxed to 55 years in case of superannuation, voluntary retirement, and for those whose application is submitted within one month of accrual of retirement benefit. Senior citizens can open an SCSS account in any post office which deals in this product or in any designated bank.
The maximum deposit one can make in this scheme is Rs 15 lakh. Typically, the scheme comes with a tenure of five years but upon maturity, it can be extended for another three years. SCSS offers tax benefits on the investment under Section 80C of the Income Tax Act. However, the interest received is taxable as per the applicable tax slab.
2. National Saving Certificate (NSC)
National Saving Certificate is another fixed income investment scheme offered by the Government of India. NSC is available at post offices across the country and anyone can invest in it. The tenure associated is five years and it s relatively low risk.
The interest is compounded annually and accumulated. Once the term ends, the principal along with the accumulated interest is paid out to the investor. There is no cap on the deposit amount in NSC.
Investment in NSC attracts tax benefit under Section 80C. And since the interest amount is reinvested every year, it qualifies for a fresh deduction u/s 80C. Only the final interest pay-out is taxable.
3. Bank fixed deposits (FD)
Bank FD is another popular choice for the retirees. The safety in returns and the ease of operations make it a go-to investment option. For senior citizens, bank FDs pay about 0.5% higher interest, which makes it attractive for a traditional investment instrument. Bank fixed deposits with five-year tenure are eligible for tax benefit under Section 80C. However, there s a lock-in period of five years. Interest on fixed deposit is taxable, but interest income of Rs 50,000 from FDs is tax-exempt for senior citizens. Theoretically, a senior citizen can invest Rs 600,000 in a year in FD at 8% compounding quarterly, drawing approximately Rs 49,500 as tax-free interest income.
4. Health insurance premium
This one is a big avenue of tax saving for the senior citizens. Needless to mention, it has your back in the event of hospitalization, as all your hospital expenses will be taken care of by the insurer. Given the steep healthcare expenses, it s a must have in your portfolio. The deduction limit for senior citizens under Section 80D has now been increased from Rs 30,000 to Rs 50,000 on the premium investment. To top it, if a senior citizen is paying for the premium of a very senior parent, he/she is eligible for an additional exemption of Rs 50,000.
(The writer is CEO, BankBazaar.com)