Tax-saving investments for senior citizens must match their financial goals as well. For example, if the senior is looking for liquidity in the short term and invests in a tax-saving instrument that requires a very long-term lock-in, then it doesn’t fulfil the purpose. The tax saving instrument should also match the lock-in needs, liquidity, return expectation and risk appetite of the seniors. Here are some attractive tax-saving tools for seniors that they may choose in sync with their financial goals.
ELSS Mutual Funds
Equity-linked savings schemes (ELSS) are mutual fund products that allow tax deduction benefits u/s 80C up to Rs 1.5 lakh in a financial year. ELSS invests in equity instruments to generate the return, with a lock-in period of 3 years. Seniors who can afford to take a little risk on their money can invest a small portion of their corpus into ELSS. Investing in ELSS through SIP mode can help seniors lower the risk to some extent.
Tax Saver FDs
Seniors benefit from higher interest rates when they invest in the bank FDs. The same benefit also applies when they invest in the Tax saver FDs. A tax saver FD allows tax deduction benefit u/s 80C. There is a lock-in requirement of 5 years in tax saver FD. Interest on tax-saver FDs is subject to taxes at a slab rate applicable for investors. The interest on tax saver FD currently ranges around 6.5 per cent per annum to 8.25 per cent per annum.
Senior Citizens Savings Scheme (SCSS)
SCSS allows seniors to invest up to Rs 30 lakh and earn a regular interest income. There is a lock-in requirement of 5 years in the SCSS, and currently, it provides an interest of 8.20 per cent per annum. Investments in SCSS are eligible for a tax deduction benefit u/s 80C. Interest earned on SCSS is taxable at a slab rate applicable to the investor. It’s not allowed to add more funds to an existing SCSS account; however, you can open a new SCSS account to make an additional investment, subject to the cumulative upper limit of Rs 30 lakh per person. SCSS can be a very useful tax-saving tool for seniors looking for a regular high-interest income on their investments.
Public Provident Fund (PPF)
EPF investment may cease for seniors, but they can invest in the PPF to get high interest along with the tax saving benefit. Investment, interest and maturity amount all three are exempt from taxes in a PPF. PPF investments are eligible for a tax benefit u/s 80C. PPF comes with a lock-in requirement of 15 years. Currently, the interest rate on PPF is 7.10 per cent per annum. PPF can be a good tax-saving option for seniors looking for a very long-term investment horizon without any concern about liquidity.
Seniors should try to diversify their tax-saving investments into various available options to lower the risk and match their financial goals. Seniors may also explore other tax-saving options available in the market, such as Pradhan Mantri Vaya Vandana Yojana (PMVVY), tax-free bonds, 5-year post office term deposits, etc, depending on their investing requirements.
The author is an independent financial journalist