More in the kitty for senior citizens

The Budget has managed to bring in considerable cheer for the elderly. By providing higher deduction and tax incentives, the Finance Minister will now ensure greater savings for senior citizens.

The much-favoured bank and post-office deposits have been made more attractive with substantial interest deductions. Not stopping at that, the Budget has increased the limits for medical insurance premiums and treatments, and enhanced provisions for certain illnesses. The added sweeteners are the introduction of standard deduction for pensioners and doubling of investment limits under Pradhan Mantri Vaya Vandana Yojana.

These deductions total up to nearly ₹1.4-1.5 lakh annually. Therefore, a senior citizen (60 years and above) in the 30 per cent bracket would now be able to save up to ₹45,000 (excluding cess) additionally in 2018-19, if she were to take all these benefits.

Gaining from interest on deposits

The elderly can hold on to their ever-reliable bank and post-office deposits even more, thanks to the ₹50,000 deduction that would now be allowed under a new section 80TTB.

At present, just ₹10,000 was allowed for deductions, that too only for savings bank interest.

Senior citizens can use this enhanced deduction, which is applicable for all fixed and recurring deposits. Additionally, the threshold for deducting TDS by the banks would be increased from ₹10,000 to ₹50,000.

The only caveat is that the ₹10,000 that was available for savings bank interest deduction (under Section 80TTA) would now not be allowed.

Suggestions: While asset allocation depends on age and risk appetite, senior citizens would do well to park at least 60-75 per cent of their portfolio in safe deposits. The new concessions mean that it would be better to retain such a proportion or tilt it more towards deposits, especially for those in the highest tax bracket.

These deductions may not available for company deposits. So, the elderly can safely avoid chasing a risky deposit for higher returns and stick to safe avenues such as banks, post offices.

Savings from medical care

Getting a medical insurance just got more lucrative as the deduction under Section 80D has been increased from ₹30,000 to ₹50,000. Also, where premiums are paid for cover of more than one year (to get relatively cheaper rates), the amount can be split proportionately over the years.

For the treatment of certain specified illnesses, the deductions have been increased from ₹60,000 to ₹1 lakh.

Together, these increased concessions could result in a potential savings of ₹60,000 through deduction.

Suggestions: There are dedicated insurance policies available for senior citizens. For a 60-year old person needing a cover of ₹10 lakh, the annual premiums range from ₹27,000 to as high as ₹75,000, depending on the features. It is an absolute necessity that seniors do not dip into their valuable accumulated corpus for health reasons.

If you are a senior citizen, you must take a health policy from insurance providers such as Star Health, Religare, Bajaj Allianz, Apollo Munich and HDFC Ergo for the maximum sum-assured that is on offer.

If you have an existing policy, you can increase the sum assured. Given the higher deduction available, the blow from higher premiums could be softened considerably.

Standard deduction introduced

As with the younger population, now senior citizens too would be allowed to deduct ₹40,000 from their taxable income. This will be in addition to their regular investment allowances and deductions.

This move is expected to benefit only pensioners who do not have the benefit of deductions that normal salaried people do.

Increased investment limit

The Pradhan Mantri Vaya Vandana Yojana (PMVVY), a pension scheme for senior citizens, now has a higher investment limit of ₹15 lakh from ₹7.5 lakh earlier. This scheme has an assured 8 per cent return(8.3 per cent for the annual payout option) and will now be available till March 2020.

The maximum monthly pension that a senior citizen could currently get is ₹5,000. With the increased limit, she would now get ₹10,000 monthly.

Suggestions: There aren’t any pension products that offer assured returns of 8 per cent annually and are also safe. Currently, immediate annuity plans in the market offer only about 6 per cent return. Bank fixed deposits for senior citizens offer a rate of about 6.5-7.5 per cent per annum.

The post office Senior Citizens Saving Scheme is an attractive option. It allows a maximum investment of ₹15 lakh and the interest rate now is 8.3 per cent per annum. The tenure is five years and can be extended for a maximum of only three more years. Also, interest payments will be made quarterly: there is no monthly pay-out option. Hence, senior citizens must invest a portion in PMVVY, after exhausting the SCSS limit, to generate a stable monthly pension of up to ₹10,000.

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