Top 5 Tax Saving Schemes for Senior Citizens

Senior citizens often seek investment avenues that secure their savings and offer substantial tax benefits. With a lot of investment options available, it becomes crucial to identify tax saving schemes for senior citizens that best align with goals of tax efficiency and financial security in later years.

This blog highlights the top five tax saving schemes that are specifically beneficial for senior citizens, offering safety, returns, and tax advantages.

How to Save Tax for Senior Citizens

1. Life insurance

   Life Insurance represents an essential component of financial planning, offering the benefit of providing financial protection to the policyholder's family in the event of their untimely demise and also serving as an effective tool for tax saving. It operates under the guidance of the Income Tax Act, specifically under Section 80C.
   
   Tax Benefit Limit:
   Premiums paid towards life insurance policies are eligible for tax deductions up to ₹1,50,000 under Section 80C of the Income Tax Act . The deduction is available to both the individual policyholder and Hindu Undivided Families (HUFs) for premiums paid on policies in the name of the policyholder, spouse, or children.

 

2. Medical Insurance Premiums

   Medical insurance is an essential tax-saving scheme for senior citizens, offering protection against high healthcare costs. Premiums paid for medical insurance qualify for tax deductions, providing an additional financial incentive to maintain health coverage.
   
   Tax Benefit Limit:
   Under Section 80D of the Income Tax Act, the deduction limit for health insurance policy premiums paid for senior citizens is ₹50,000 per annum. Furthermore, preventive health check-up costs are also eligible for a deduction of up to ₹5,000 within the overall limit.

3. National Pension System (NPS)

   The National Pension Scheme is a government initiative designed to provide financial security to individuals post-retirement. It is a voluntary, long-term investment plan for retirement under the purview of the PFRDA.
   
   Tax Benefit Limit:
   Contributions to the National Pension Scheme (NPS) qualify for tax deductions up to ₹1,50,000 under Section 80CCD (1) and Section 80CCE. NPS investors can also secure an extra deduction of up to ₹50,000 under Section 80CCD(1B), exceeding the Section 80C limit. Upon retirement, 40% of the withdrawn corpus is tax-exempt, and the remainder, allocated to an annuity, is taxed based on the individual's tax bracket.

4. Tax-Savings Fixed Deposits & Recurring Deposits

   Fixed Deposits are a preferred choice for tax saving for senior citizens, especially those seeking a risk-free investment. Designed specifically for tax saving, these FDs come with a lock-in period of five years and qualify for tax reductions under Section 80C of the Income Tax Act 1961.
   
   Tax Benefit Limit:
   Investments made in Tax-Savings FDs are eligible for a tax deduction of up to ₹ 1,50,000 per annum under Section 80C. However, it is crucial to note that the interest earned on these deposits is subject to taxation according to the individual's tax slab.

5. Public Provident Fund (PPF)

   The Public Provident Fund is a well-known long-term tax-free investment for senior citizens option backed by the Government of India. It is particularly appealing to senior citizens due to its risk-free nature and the EEE (Exempt-Exempt-Exempt) tax status.
   
   Tax Benefit Limit:
   Investments in PPF are eligible for a tax deduction under Section 80C of the Income Tax Act up to a limit of ₹1,50,000 per annum. The interest earned and the maturity amount are also exempt from tax. The PPF account has a 15-year maturity period, extendable in blocks of 5 years, providing flexibility to senior citizens in planning their retirement.

Conclusion

Investment schemes require careful consideration of one’s financial goals, risk tolerance, and tax implications. Moreover, diversifying investments across insurance schemes such as that offered by PNB MetLife, called the “Mera Mediclaim Plan”, can mitigate risks and maximize returns over the long term.
With finding ways to save tax for senior citizens, it is essential to periodically review investment choices with changing economic conditions, interest rates, and tax laws to ensure that their portfolios remain aligned with their retirement objectives.