|
|
|
|
Tax exemption for
Senior citizens in Union Budget 2009-10
Finance Minister Pranab Mukherjee on july 6, 2009 proposed
in Union Budget to increase the income tax exemption limit for senior citizens by Rs.15,000, for
women and others by Rs.10,000 each, while keeping the corporate tax rate
unchanged. The exemption limit will now be Rs.240,000 for senior citizens, Rs.190,000 for
women and Rs.160,000 for others.
Investment plan
After retirement at 60, you should first ensure that you get a regular stream of income from investments to meet your monthly household expenditure. Whether you are a
pension holder or not you should make your proper investment plan for your future.
Banks have been slashing rates on deposits, most medium and long-term bond funds have delivered only a fraction of what they did in the previous three months. With the annual consumer inflation rate still hovering above 9 per cent, the real returns from many fixed income instruments have turned negative. This is particularly worrisome for
senior citizens like who need a steady flow of income from investments in the absence of a pension.
In the year 1995-96, the five-year bank fixed deposit earned an interest rate of 13 per cent, but now you can hardly get anything more than 8.75 per cent. Small savings schemes with the post office are no better. While yours savings are earning less, the medical bills and other age-related expenses are rising. Thus, you should select your investment planning carefully
Bank fixed deposits, the post office monthly income scheme, Senior Citizen Savings Scheme
(SCSS) and annuities are the investment options for this.
Bank deposits
As a senior citizen, you will get a 0.5 percentage point higher interest rate on your bank fixed deposit. A senior citizen can now get a maximum interest rate of 8.75 per cent
on a bank deposit (for fixed deposits up to 10 years).
Post office MIS
In comparison, the post office monthly income scheme offers an interest rate of 8 per cent and the investment period is six years.
However, considering the 5 per cent bonus available on maturity after six years, the overall rate of return works out at 8.83 per cent. This is better than the bank fixed deposit
rate of 8.75 per cent.
Special scheme
SCSS offers a higher interest rate of 9 per cent and any investment up to Rs 1 lakh in this scheme is also eligible for
deduction under Section 80C of the Income Tax Act. The
investment tenure of this scheme is higher at 15 years.
Annuities
The advantage of annuities is that you shall get a fixed monthly, quarterly, half-yearly or annual income during your lifetime. There is an option where your spouse can get back
the capital investment after your demise. But the returns are the lowest in annuities — between 6.5 and 7.5 per cent at
present.
Mutual funds
Bond and debt schemes of mutual funds also provide a low-risk investment option for senior citizens. But the returns from these schemes are neither regular nor fixed.
However, the annual returns from bond/debt funds are generally higher than the bank or post office interest rates (on deposits).
Mutual funds’ fixed maturity plans (FMPs) caught the fancy of risk-averse investors by offering a higher return than bank
interest rates. After the debacle in October, FMPs are now made tradable on stock exchanges. Investors in FMPs thus now stand to make capital gains from trading in FMPs on the bourses. But generally, the trading price of an FMP will be lower than its net asset value per unit.
This discount will disappear as the FMP approaches its maturity. Besides, the price per unit of an FMP varies with the market interest rate, inflation rate and government’s borrowing
programme. However, a debt investor needs a superior understanding of market dynamics than an equity investor because debt papers are more complex than equity.
Equities
There is a general belief that senior citizens should not invest in risky assets such as equity.
The probability of suffering a loss on an equity investment depends on the time period of that investment — the longer you remain invested, the lower is the probability of suffering a loss.
Given an investment time frame of 10 to 15 years, even senior citizens can have equities in their portfolio. Balanced funds
rather than diversified equity schemes are better suited for them.
While balanced funds have given an annualised return of 12.23 per cent on an average, debt funds have given a return between 5.89 per cent and 9.37 per cent over the last five years.
Balanced funds also provide better liquidity. You can sell
your entire or part of holding any time. Debt schemes are mostly close-ended. |
|
|
Tax Benefits
Those who attain the age of 60 years and above are eligible for the following
exemptions extended by the government:
Section 88 of Finance Act, 1992, provides income tax rebate of up to
Rs. 15,000 or actual tax whichever is less to senior citizens who have attained the age of 65 years at any time during the relevant previous year.
Senior citizens are excluded from the “One by Six” scheme for filing the Income Tax Return under provision Section 139(1).
For senior citizens, the deduction in respect of medical insurance premium is up to Rs. 15,000/- under Section 80 D.
Financial Planning
Senior citizens should plan and select financial schemes way in advance to receive monetary benefits. These financial schemes and
plans are offered by banks, fund houses and financial institutions. Proper
planning of available income options leads to better management of expenses.Financial planning allows you to achieve various goals such as buying a new car,
paying for health expenses, going on foreign vacations and living a financially
secure life after retirement. The process and various steps that lead to the
proper management of finances are called financial planning.
Loans
Personal loans are helpful when one is in immediate need of financial
assistance. Senior citizens are usually denied regular loans because of their
inability to show proof of a regular level of income. However, recently, banks
have started offering loans to pensioners and older people who can provide
collateral in the form of an asset such as a home or land. This loan can be used
to meet various expenses such as medical costs, marriage of grand children or paying old age home fees.
Tax Exemption on Interest
Senior citizens enjoy additional benefits in terms of saving schemes and
interest earned on them. Interest is levied on the amount of money deposited for
a particular time period. The rate of interest varies for different durations
and is liable to change from year to year. Most banks provide a higher rate of
interest to senior citizens than the rate available to the general public. They
usually ask for proof of age before opening up such an account.
Apart from these benefits, senior citizens also enjoy an annual interest rate of
9 per cent on deposits made by them in post offices, as on March 31, 2007.
The Reserve Bank of India has permitted higher rates of interest on saving schemes of senior citizens.
Accordingly, banks have allowed an added interest on fixed deposits for every
term as on. Tax is deducted at source for interest on fixed deposits. Other than higher interest rates on deposits, senior citizens also enjoy
exemptions on penalty rates for premature withdrawal of term deposits. Fixed
deposits are sometimes withdrawn to tide over emergencies like sudden medical
expenses and hospitalization. In this case, senior citizens are either exempted
completely or charged a meagre percentage rate of their deposits.
Insurance product for
seniors.
The falling interest rates and, thus, declining returns on investment, the burden of expenses on account
of ill-health pinches all the more. And, insurers are only lately starting to realise that seniors citizens should also be offered a worthwhile insurance cover. The worst part is, most insurers do not generally offer any insurance product for seniors.
The ceiling on age for entering the majority of risk policies like mediclaim or life cover is generally kept at 50 years. Once citizens turn 60, they become virtually untouchables for insurers. As a welcome change, National Insurance Company (NIC) has recently come up with a mediclaim policy for seniors with a cover till the age of 90. |
|
|
