Discover these 4 tax-efficient investment tools

Tax savings for seniors: Discover these 4 tax investment tools

Photo: BCCL

Investing is not just something that should be done when you are young, but older people can also put their money into investment tools that not only offer risk-free returns but also allow for tax deductions. It is ideal for an individual to begin their tax savings at the start of a new fiscal year in order to achieve their personal financial goals.

Another advantage for older people is that they can sometimes get better returns than normal people. In addition, taxpayers can also opt for the new tax regime for the 2022-2023 fiscal year or continue with the old regime.

Here are five tax-saving options for seniors that can be considered when investing in the current fiscal year:

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1 – Tax-exempt bonds

It is a good investment tool for seniors who want returns above inflation and want a generous regular income. Government-backed interest income on tax-exempt bonds is tax-exempt, making them risk-free investments for individuals in higher tax brackets.

2- Fixed deposits of tax savings over 5 years

As the name suggests, these tax-saving term deposits are a type of investment with a lock-up period of 5 years. Early withdrawals are not permitted under the plan until the account has reached maturity. Under Section 80C of the Income Tax Act 1961, tax saving fixed deposit tax deductions are available up to Rs 1.5 lakhs per fiscal year.

Tax-saving FDs offer a triple benefit, including risk-free returns, tax deductions, and deposit security by DICGC. They usually offer flexible interest payment options, such as monthly, quarterly, or reinvestment, however, the interest earned would be taxable depending on your tax bracket.

3- Seniors Savings Scheme (SCSS)

This investment option offers tax benefits under Section 80C with higher returns than tax-saving DFs. A person over the age of 60 can open an SCSS account at a post office by making a single deposit into the account in multiples of Rs 1,000 with a maximum deposit of Rs 15 lakh.

It should be noted that payments made under this scheme are eligible for tax benefits under Section 80C. Currently, it offers a taxable interest rate of 7.4% per annum, higher than the fixed interest rates offered by banks.

4- National Pension System (NPS)
This is a voluntary retirement savings plan that allows subscribers to pay defined contributions to secure their future in the form of a pension. Regulated by the Pension Funds Regulatory and Development Authority, this investment program offers subscribers exposure to both equity and debt securities. In addition, it is an EEA instrument where the investor benefits from income tax exemption at maturity and the full amount of the pension withdrawal.

It provides tax benefits under Sections 80CCD(1) and 80CCD(1B). Subscribers can make a minimum contribution of Rs 6,000 during a financial year. This can be paid as a lump sum or in monthly installments of a minimum of Rs 500. The current NPS interest rate range is 8-10%.

Dorothy H. Lewis