3 Investment Vehicles That Can Help You Save On Tax

Taxes can significantly reduce your disposable income after retirement. Investment planning can help you reduce your tax liability and maintain a comfortable lifestyle after retirement

Amit Sethi
June 29, 2023
3 Investment Vehicles That Can Help You Save On Tax

Financial security is a universal aspiration that motivates individuals to make professional and investment decisions. While active in work life, numerous options are available to enhance financial security. However, the same array of choices may not be as accessible during retirement. Therefore, strategic investment planning to save on taxes becomes essential, enabling the formation of a larger retirement corpus and providing enhanced financial security. Let us now explore a selection of significant investment products that can assist senior citizens in maximizing tax savings.


Tax-Saving Fixed Deposits

Most banks offer fixed deposit schemes specifically designed for senior citizens. These deposits not only provide the benefit of tax deduction up to Rs. 1.5 lakh under section 80C but also offer higher interest rates compared to other debt investments. Senior citizens receive additional interest compared to the general public, typically ranging from 0.25 per cent to 0.75 per cent higher on tax-saving fixed deposits (FDs).

It’s important to note that the interest earned on these deposits is taxable. However, depositors have the flexibility to choose the frequency of interest payouts, which can be monthly, quarterly, half-yearly, or yearly, depending on their preference. Senior citizens can open fixed deposit accounts individually or jointly with their spouses. In the case of a joint tax-saving FD account, the tax benefit is only available to the first holder.

Given that deposit rates may vary among banks, senior citizens should compare rates offered by different banks before making a decision. This ensures that they can maximize their returns and choose the bank that offers the most favourable terms for their tax-saving fixed deposit investments.

Senior Citizens Saving Account (SCSS)

The Senior Citizen Savings Scheme (SCSS) is an excellent investment option that offers higher interest rates to senior citizens while providing tax benefits. This scheme is backed by the Government of India, making it a relatively risk-free investment opportunity. Investing in SCSS allows individuals to claim a tax deduction under section 80C.

The maximum limit for investing in SCSS is Rs. 30 lakh, and the investment tenure is set at 5 years. However, the tax deduction is limited to the amount specified under section 80C, which is currently Rs. 1.5 lakh. After the initial 5-year period, the tenure can be extended by an additional 3 years. The interest rate for SCSS is 8.2 per cent per annum.

If you have a lump sum amount to invest and seek a regular source of income, investing in SCSS can be a suitable option for you. However, it’s important to note that the interest earned on SCSS investments is taxable according to your applicable tax slab rate.

Equity-Linked Savings Scheme (ELSS) For Higher Return

While investing in equities may pose risks for retirees and senior citizens, allocating a small portion of your portfolio to equity instruments can be considered for tax-saving purposes, particularly through a systematic investment plan (SIP). Investing in Equity Linked Saving Schemes (ELSS) provides the benefit of a tax deduction of up to Rs. 1.5 lakh under section 80C.

By utilising the systematic investment plan (SIP) route to invest in ELSS, senior citizens can mitigate risk and potentially benefit from better rupee cost averaging, especially in volatile market conditions. ELSS investments offer the potential to maximize returns over the long term, and they come with a relatively short lock-in period of only 3 years.

While tax-saving investments can significantly reduce the tax liability for senior citizens, they must align tax-saving strategies with their retirement goals.


The author is an Independent Financial Journalist

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