Clipped from: https://www.business-standard.com/article/pf/optimise-80c-tax-saving-benefit-by-investing-in-scss-in-tranches-123031000846_1.html?utm_source=Spotlight&utm_medium=website&utm_campaign=Premium_11072018
They could invest in SCSS in tranches to optimise Sec 80C benefits and park some money in PMVVY before it closes on Mar 31
Indian tax laws provide many benefits to senior citizens that they should be aware of, both while making tax-saving investments (the final deadline for which is March 31), and at the time of filing their returns.
Aditya Chopra, managing partner, Victoriam Legalis-Advocates & Solicitors, says, “Recognising that senior citizens may not have a regular source of income and may have to rely on their savings for their living expenses, and also to ease their financial burden during their years of retirement, the government has provided them with a number of benefits.”
Who is a senior citizen?
According to the Income-Tax (I-T) Act, a senior citizen is an Indian resident who is 60 years of age or above but less than 80 years at any time during the relevant financial year. A super senior citizen is a person who attains the age of 80 years or more at any time during the financial year under consideration.
Suresh Surana, founder, RSM India says, “An individual will be treated as a senior or super senior citizen for the financial year even if he attains the age of 60 or 80 years on the last day of the financial year.”
Myriad tax benefits
Senior citizens should take advantage of the tax benefits provided specifically to them. Chopra says, “Seniors in India are entitled to a higher basic exemption limit as well as additional tax deductions for certain expenses, such as medical treatment and insurance premiums.”
Senior citizens also don’t have to bear the burden of paying advance tax. Surana says, “Senior citizens aged 60 years or more need not pay any advance tax, provided they don’t have income under the head ‘profit or gain from business or profession’.”
Mistakes to avoid
1. Lump sum investment in SCSS: Keshav Singhania, co-leader, Singhania & Co LLP explains that a senior citizen who invests the entire limit of Rs 15 lakh (Rs 30 lakh from the next financial year) in Senior Citizen Savings Scheme (SCSS) at one go would get the tax break under Section 80C in only one financial year. By investing in instalments, he can avail of this deduction for several years.
2. Postponing PMVVY investment: Invest in Pradhan Mantri Vaya Vandana Yojana (PMVVY) at the earliest. Singhania says, “Investment in PMVVY comes with an attractive (7.4 per cent) assured return for the elderly.
It has a sunset clause of March 31, 2023, unless extended.”
3. Playing it too safe: Many senior citizens are ultra cautious while investing. Chopra says, “Apart from traditional tax-saving schemes like the SCSS and National Savings Certificate, explore other tax-saving options like mutual funds, insurance policies, and health insurance plans.”
4. Failure to report some incomes: Seniors may have multiple sources of income, such as rental, interest, and pension income. They must report all of them while filing their tax returns to avoid penalties and scrutiny from the tax department.
5. Poor documentation: Many senior citizens don’t maintain their investment-related documents properly. Many also don’t review the performance of their past tax-saving investments, leading to sub-optimal portfolio decisions.
To be able to claim all the deductions they are eligible for while filing their returns, they must also maintain a proper record of all the expenses and investments made during the financial year.
6. Selecting wrong tax regime: Senior citizens should get a detailed evaluation done of the new versus old income-tax regime, taking into account all tax deductions and exemptions they are entitled to. Singhania says, “The outcome regarding which tax regime should be chosen will vary, depending on the facts of each individual’s case.”
A senior citizen who takes the benefit of a large number of deductions and exemptions is likely to find the old tax regime beneficial, and vice versa.
7. Delayed tax planning: Many taxpayers, including senior citizens, defer tax planning until the end of the financial year. Sandeep Bajaj, managing partner, PSL Advocates & Solicitors, says, “Under the pressure of the looming March 31 deadline, they tend to make poor investment choices only to somehow reduce their tax liability.”
Products that benefit the elderly
⦁ Senior Citizens Savings Scheme offers a return of 8 per cent and also offers Section 80C benefit; interest income from it is taxable
⦁ Prime Minister Vaya Vandana Yojana, which closes on March 31, offers 7.4 per cent interest, but doesn’t offer Section 80C benefit; interest is taxable
⦁ Senior citizens get a higher rate of interest (at least 25-50 basis points higher) on fixed deposits; they can also avail of tax exemption of up to Rs 50,000 on interest income from FDs under Section 80TTB
⦁ Senior citizens can avail deduction of up to Rs 50,000 on their health insurance premium (compared to Rs 25,000 allowed to ordinary citizens)