Are you a senior citizen? Here's how you can save on tax
Are you 60 years old or above? If you are, you fall in the senior citizen category. The government offers some tax benefits if you are in this category, so that you don’t have to bear a huge financial burden when there are chances that you may not be earning a regular income.
Let’s look at the various ways in which you can save tax as a senior citizen, so that you don’t need to have additional financial worries post-retirement.
Lower Income Tax
As a senior citizen, you are eligible for more tax exemption compared to younger taxpayers. While those below 60 enjoy tax exemption for incomes up to Rs. 2.5 lakh per annum, your exemption limit goes up to Rs. 3 lakh a year. And if you are a senior citizen above 80 years of age (super seniors, as is referred by many), your tax exemption limit rises to Rs. 5 lakh per annum.
So, if you are a senior citizen between the age of 60 and 80 years, you will pay income tax of 5 per cent if your annual income slab is between Rs. 3 lakh and Rs. 5 lakh. Incomes over that will be taxed at 20 per cent. If income exceeds Rs. 10 lakh, the tax rate goes up to 30 per cent.
If you are over 80 years of age, the same tax rates apply for incomes over the exemption limit of Rs. 5 lakh.
If your income is over Rs. 50 lakh, there is an additional surcharge in the range of 10% to 37%. Plus, there is a surcharge of 4 per cent on all taxpayers.
In Budget 2021, there is also an ease of compliance for senior citizen taxpayers. It proposes to exempt senior citizens above 75 years to file income tax returns if they have only interest and pension income.
Investing in Senior Citizen’s Saving Scheme (SCSS)
If you are above 60 years of age, you can opt to invest in the government-backed SCSS and enjoy deduction from taxable income up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. The interest is subject to tax.
Another advantage of SCSS is the high interest rate of 7.4 per cent (as of Jan 2021), which is very good for a fixed income instrument with high levels of safety. You can invest a maximum of Rs. 15 lakh in SCSS for a duration of five years, which is extendable for three more years.
You can follow a simple process to open an individual account in SCSS or a joint account with your spouse at an authorized post office or bank branch.
Buying a health insurance policy
As you grow older, you are likely to incur more medical expenses, especially hospitalisation costs. Hence, it is necessary to have a health insurance policy in place. If you already have one, you can avail of tax benefits under Section 80D. As a senior citizen, you can get an increased deduction of Rs. 50,000 per annum from taxable income.
Tax benefit on deposit schemes
As you become a senior citizen, you tend to start relying on the income earned from your investments made in fixed deposits, recurring deposits and even post-office deposit schemes. The best part of this is that you can claim deduction from taxable income of up to Rs. 50,000 per annum on the interest earned from these deposit schemes as per section 80TTB. This benefit is available for deposits held in banks, post offices, or cooperative banks.
With these small tips to save tax, you can optimise your income during the post-retirement years!
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