Seniors should research investment opportunities that offer risk-free returns as well as tax deductions because tax planning is a crucial part of saving and accumulating money in retirement. To achieve one’s own financial goals, one should start tax planning at the beginning of the new fiscal year rather than waiting until the last minute. For the fiscal year 2022–2023, taxpayers have a choice between the new tax system and the previous one; the basic exemption threshold is Rs. 3 lakh for senior citizens in the age group of 60 to 80 years and up to ₹ 5 lakh in a financial year for super senior citizens above 80 years of age. As a result, in addition to the previously mentioned crucial factors, here are five tax-saving choices for senior citizens that can be considered when investing in the current fiscal year.
Tax-free bond
Seniors who desire reasonable regular income and returns that outpace inflation can consider tax-free bonds. Since they are issued by organizations that are backed by the government and, as their name suggests, the interest income is tax-free, making it a risk-free investment for individuals in higher tax brackets.
When investing in tax-free bonds issued for tenors of 10 years or longer, elderly investors may seek higher or stronger credit ratings, higher liquidity, and yield to maturity (YTM) returns. NHPC Limited has received the highest ratings of AAA with Stable Outlook from CARE, AAA with Stable Outlook from ICRA, and AAA with Stable Outlook from India, indicating a high degree of financial stability. The bond has an annual coupon payment frequency of annualized, YTM of 5.5236 percent per annum, and a coupon rate of 8.67 percent per annum.
The National Thermal Power Corporation (NTPC) bond, which is exempt from taxes and has a AAA rating from CRISIL and ICRA, is another bond. The bond was issued on December 16, 2013, and will mature on December 16, 2033. The bond has an annual coupon rate of 8.66 percent and a YTM of 5.5007 percent.This bond also has an annual payoff schedule. Investors should be aware that while interest on tax-free bonds is not subject to income tax, selling tax-free bonds after one year will result in long-term capital gains that will be taxed based on your individual tax bracket. Will have to pay tax. at 10%.
5 Year Tax Saving Fixed Deposit
Investments such as tax-saving fixed deposits have a 5-year lock-in period that prevents early withdrawal before the account matures. Tax deductions on tax-saving fixed deposits are provided up to Rs. 1.5 lakh every financial year under Section 80C of the Income Tax Act of 1961. The DICGC’s tax-saving fixed deposits give senior residents a triple benefit package that includes risk-free yields, tax deductions, and deposit protection.
The interest collected will be taxed according to your tax bracket, but tax-saving FDs typically offer flexible interest payment options including monthly, quarterly, or reinvestment. The bank would deduct TDS when the amount of interest or reinvestment due to senior citizens surpasses Rs. 50,000 in a fiscal year. A tax-saving FD can be opened at a post office or bank. By opening a Post Office Time Deposit Account (TD), which also offers a tax deduction, senior citizens can get a 6.70% return on 5-year deposits and on the other hand, SBI now offers an interest rate of 6.30% on tax-saving fixed deposits. is offering. Deposit.
Senior Citizen Savings Scheme (SCSS)
Seniors might look into SCSS if they want to take advantage of tax benefits under Section 80C with returns higher than tax-saving FDs. By depositing up to Rs 15 lakh in multiples of Rs 1,000 at a time, a person over 60 years old can open this account at the post office. Section 80C of the tax code provides tax benefits for investments made under this plan. Currently, SCSS offers a taxable interest rate of 7.4% per annum, which is much higher than the fixed interest rates offered by banks. Following the date of deposit, interest will be paid on a quarterly basis on the following dates: 31st March, 30th June, 30th September, and 31st December. If the total interest earned in all the SCSS accounts exceeds Rs. The post office will deduct TDS if the amount exceeds 50,000 in a fiscal year. The SCSS account has a 5-year maturity period and can be extended for a block of 3 years after maturity.
National Pension System (NPS)
The National Pension Scheme (NPS), which is run by the Pension Regulatory and Development Authority, is a programme backed by the government (PFRDA). The National Pension System (NPS) is a voluntary retirement savings programme that provides a selection of pension funds and a number of investment possibilities. The NPS is an all-citizen savings programme with an age range of 18 to 70. The maximum amount of tax benefits that a subscriber may receive under section 80CCD(1) and section 80CCE is Rs. 1.5 lakh. Only NPS subscribers are qualified for an extra deduction under section 80CCD for contributions up to Rs. 50,000 made to an NPS (Tier I account) (1B).
Additionally, subscribers are eligible for tax deduction on the amount withdrawn up to 25% of their own contribution. Additionally, NPS allows tax exemption under section 80CCD(5) on annuity purchases made after 60 years of age or on retirement. However, section 80CCD(3) of the taxation system applies to subsequent income derived from an annuity. Further, under Section 10(12A) of the Income Tax Act, subscribers are eligible for tax exemption on lump sum withdrawal of 60% of their total pension wealth on reaching 60 years of age or retirement.
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