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Budget 2021 update :It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.
Retirement is an important stage in your life. Everybody, whether self-employed or salaried, expects to secure their lives post-retirement. This article discusses everything you need to know about various investment options post-retirement for senior citizens.
As an investor, you would expect your investment to provide you with a regular income as well as accumulate wealth post-retirement. While some investments only offer only one of the benefits, some provide you with both. In case you are a pensioner with a regular source of income, you might not need to focus on the first benefit. You can consider directing your portfolio towards mutual funds which grow over time and accumulate wealth in such cases.
However, in case of salaried or self-employed individuals who do not receive any form of pension, you might want to orient your portfolios towards investments which provide a regular income in return. Hence, it is advised to think over the type of investment portfolio you would like to have.
There are various investments that offer a regular monthly income. Here are some of the best investment options for senior citizens and pensioners:
Recurring Deposits and Fixed Deposits
Fixed deposits (FD) and recurring deposits (RD) are one of the most common types of investments made by retired individuals. Banks also offer a comparatively higher rate on FDs and RDs for pensioners. Under Section 80TTB of the IT Act, an interest income up to Rs.50,000 for senior citizens during a financial year is completely tax-free.
In case you are investing in post office FDs and RDs, you will be offered the same tax benefits as that of the bank deposits. However, post offices offer an additional layer of security on your deposits. The funds in your post office deposit account are directed towards the government to ensure that there is no delay in payments.
You can also consider investing in the Post Office Monthly Income Scheme (POMIS), which offers a monthly income. Though you can avail tax benefits on investments up to Rs.1.5 lakh on FDs with a five-year maturity period, the interest income on the same is liable for taxation.
Pradhan Mantri Vaya Vandana Yojana
The Pradhan Mantri Vaya Vandana Yojana (PMVVY) scheme operated by the Life Insurance Corporation (LIC) is a low-risk investment pension plan. The tenure can be extended up to a maximum of 10 years with the rate of interest fixed at 8% p.a.
The pension receivable under the scheme will range from Rs.1,000 to Rs.10,000 per month depending on the amount you have invested. To avail the scheme, you will have to make an initial investment not more than Rs.15 lakh on or before 31 March 2020.
Keep in mind that investment made towards this scheme will not be eligible for tax deductions under Section 80C. However, the PMVVY scheme is exempted under Goods and Services Tax (GST).
Senior Citizen Savings Scheme (SCSS)
SCSS is an excellent investment option for senior citizens looking for long-term saving schemes which offer security with other additional benefits. You can avail the scheme from post offices and recognised banks around the country.
Not only is the rate of interest offered on this scheme comparatively higher than that of the regular savings and fixed deposit accounts, but you are also eligible for tax benefits up to Rs.1.5 lakh under Section 80C of the IT Act, 1961.
There are various types of investment through which senior citizens can orient their portfolios towards growth and wealth accumulation. Here some of the best investments through which retirees and pensioners can enjoy inflation-beating returns:
Investing in mutual funds is by far the best decision one can make to create wealth and grow at the same time. Start investing in mutual funds and enjoy its twin benefits – high inflation-beating returns and tax savings. Under Section 80C, you will be eligible for tax deductions up to Rs.1.5 lakh per year.
ClearTax offers a wide array of mutual fund plans catering to your various needs. Invest in top-performing mutual funds handpicked by our experts and enjoy inflation-beating returns sitting at home.
National Pension Scheme (NPS)
The National Pension Scheme can be availed by individuals between the ages of 18 and 65 years. Senior citizens can extend the tenure up to the attainment of 70 years of age as well. Under Section 80C, taxpayers are eligible for deductions up to Rs.1.50 lakh on the investment made towards NPS. Similarly, under Section 80CCD, individuals are also eligible for additional benefits up to Rs.50,000.
The investment made towards the NPS scheme can be directed towards equity bonds or debt bonds, or both depending on the individuals choice. Though NPS does not offer a steady rate, the scheme generates excellent returns and your investment can grow at a faster rate by orienting your NPS towards equity funds.