Their Story. How are old-timers playing the Budget?

Budget 2018-19 had a lot of goodies for the elderly to ensure more savings in their golden years. Be it increasing exemption of interest income, higher healthcare deductions or re-introduction of standard deduction, pensioners are sure a happier lot. BusinessLine reached out to some senior citizens to find out how they plan to make the best of the tax and other benefits.

Deposits turn more attractive

For most senior citizens, the humble bank fixed deposits and post office deposits are still the first and the safest choice. The Budget has made investments in these deposits more attractive by offering higher interest deductions. Earlier, interest income (from savings deposits) was exempt up to ₹10,000 (under 80TTA).

The Budget has introduced a new section 80TTB to increase the deduction to ₹50,000 for all bank and post office deposits for senior citizens.

Given that interest on deposits is the main source of income for the elderly, higher deduction is a welcome move. According to Krishnamoorthy, a retired Government official, “As most of my retirement fund is in the form of fixed deposits, this increase in exemption limit will lower my tax outgo.”

For Kalyanam Gopalan Iyer too, a retired employee of a motor company, given that interest on deposits is the only source of income, increase in exemption limit leaves him with more money in the hand. “With higher deductions, I will have additional money to spend,” he says.

The increase in exemption limit has encouraged people such as M Gnanajothi, Prof, Kongu Engineering College, to increase their investment in fixed deposits. This is because earlier, the deduction was available only for savings deposit. “So far, my income was left untouched in my savings account, and now, I’m thinking of allocating some portion for fixed or recurring deposits, to avail of the higher deduction”.

But even without the higher exemption limit, it would be prudent for senior citizens to park some funds in fixed deposits (the tenure depending on their liquidity requirement). This is because fixed deposits offer a much higher rate of interest (6-7.5 per cent) than savings deposits (3-3.5 per cent). Hence it would not make sense to allow funds to idle away in savings deposit.

A healthy move

According to the economic survey 2017-18, limited affordability and access to quality medical services are among the major challenges contributing to delayed or inappropriate response to disease control and patient management.

With the elderly population slowly but steadily increasing, the need for better healthcare services takes priority and the Centre has given the much needed focus to healthcare in the recent Budget.

The mega health insurance scheme is a significant move by the Centre. Senior citizens too get a fair share of the benefits.

The deduction of ₹30,000 available under section 80D towards annual premium of health insurance or preventive healthcare check-up for senior citizens has been increased to ₹50,000. Also, for the treatment of certain specified illnesses, the deductions on medical expenditure have been increased from ₹60,000 to ₹1 lakh.

A Muthulakshmi, aged 67 years, says “For me, medical expenditure is high and this increase in deduction limit is a welcome change.” Krishnamoorthy too feels that the increase in deductions is a good move. “I can now claim a higher deduction for my health insurance premium. I may even opt for an additional health insurance policy”. Gnanajothi also says that he may increase his health cover after April this year.

If you are a senior citizen, it is time to take stock of your existing policies and make sure that you are adequately covered. Take a higher cover if need be to avoid hefty out-of-pocket expenses from your nest egg. While you may end up paying higher premiums, the higher deductions can offer some respite.

More goodies for pensioners

Aside from the ₹40,000 standard deduction leading to more savings, pensioners also have another reason to cheer. The Budget has doubled the investment limit from ₹7.5 lakh to ₹15 lakh under the Pradhan Mantri Vaya Vandana Yojana (PMVVY), a pension scheme for senior citizens.

This implies a much higher monthly pension than before. The 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.

Muthulakshmi says, “The scheme’s 8 per cent guaranteed return is on par with the senior citizens savings scheme (SCSS). With the investment limit increased, I am considering parking some money in the scheme.”

Also, it offers a monthly pension option, which is not available with post office scheme (interest payments are made quarterly).

Gnanajothi says he would consider allocating some portion of his fund to PMVVY as it is one of the few pension products that offer guarantee return, relatively higher than existing fixed deposit rates.

For others such as S Narasimhan, retired bank executive, “In the last few years, the decline in bank interest rates has made me shift some of my earnings to the stock market for the long term. Now, with the introduction of tax on long-term capital gains, I’m thinking of fixed income investment options (such as SCSS or PMVVY). Though the LTCG tax amount might not be huge, for a retired person like me, the outgo of tax and volatility in returns is still a concern.”

Krishnamoorthy too feels the tax on capital gains for senior citizens to be a burden.

“I’m planning on selling a few securities and moving it to fixed deposits or to the pension scheme, after the market recovers” he says. However, Muthulakshmi feels that despite the tax on long-term gains, the returns from the market can be higher than the tax outgo.

While some exposure to equity helps in beating inflation, for a senior citizen, moving the entire savings to stock market is not advisable — capital gains tax or no. It is always prudent to have a chunk of your savings in deposits and other safe investment options, where there is no risk of erosion of capital.

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