Senior Citizens fall in an age bracket where multiplying existing corpus is the most likely method to sustain. Thus, they need to be on the lookout for various tax saving options. It encourages savings and ensures risk-free investments. Second to this, comes the issue of tax planning. If not done properly, taxes can eat away the returns on these instruments.
Tax planning – an important part of financial planning for senior citizens
With the increasing expenses and changing lifestyles, it is important that:
- Senior citizens plan their finances well and choose smart investment policies where there are minimal losses.
- Channelize funds prudently to save taxes and reap high return benefits on savings.
- After the age of 60 years, when financial goals are limited, but so is the income, they adopt prudent planning. Tax saved is more money available for other goals like sustenance, medical corpus or holidays and hobbies.
Let us look at the various tax-breaks on offer for senior citizens –
Tax-Saving Fixed Deposit
The interests gained under regular fixed deposits are taxable. Tax deducted at source is also applicable on general FDs. So, to claim tax deduction under 80C of the Income Tax Act, one should opt for Tax-Saving Fixed Deposits which is open for individuals, members of HUF, senior citizens and NRIs.
Key features of Tax-Savings FDs are:
- Maximum deduction that can be claimed is – Rs 1.5 Lacs.
- The number of years for which the amount locked-in is – 5 years.
- Rates of Interest ranges between- 6-7%. With Bajaj Finance FD you can gain 8.75% plus an additional 0.35% for senior citizens for a lock-in of 60 months.
- An option of premature withdrawal or loan against these deposits is not available.
- Investors can receive payouts of interest on the basis of a month, quarter, half-year or a year as per their convenience.
- Tax-Saver FDs can be opened as a single or joint account. In case, a joint account is the mode of holding, then only the first holder shall get the tax benefit.
- Tax Saving Fixed Deposits also enables nomination facility which means, an investor can nominate a person who can withdraw the amount on his behalf, in case of investor’s demise.
Choosing from various tax-free options
On comparing the Tax- saving Fixed Deposit with the various other tax savings options like Public Provident Fund (PPF), National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Senior Citizens Saving Schemes (SCSS) there can be different pros and cons of each.
- Taxability – Some of these options like ELSS and NSC are partially taxable.
- Lock-in – While the tax-saving FD and SCSS is locked in for five years, PPF and NSC have longer lock-in duration thus leaving you without liquidity when you need immediate cash to meet your financial obligations.
While tax saving should be a goal, sometimes the returns are not good enough. Instead, you can go for high interest paying fixed deposits such as company FDs. Bajaj Finance offers higher rates of return on fixed deposits than banks at 8.75%. With a certification from ICRA (MAAA /stable) and CRISIL Rating (FAAA/Stable), you can start a high-yielding Bajaj Finance Fixed Deposit with as low as Rs 25,000.