I want to know the tax saving options available to senior citizens to save income tax. My father is 76; has no PPF or medical insurance. He generates income from interest on investments and from rent that I pay him. Please suggest some tax plans for him.
All other tax saving options under Section 80C such as PPF, NSC, ELSS and life insurance policies qualify for tax deductions up to Rs 1 lakh on investments in a financial year. Tax savings with such investments are available to every citizen with no distinction to senior citizens. Likewise, tax deductions can be claimed under Section 80D up to Rs 15,000 by every citizen, which goes up to Rs 20,000 for senior citizens.
The only targeted tax saving option for senior citizens is the Senior Citizens Savings Scheme, targeted at those above 60 years of age. This deposit scheme was introduced by the Government of India to provide guaranteed returns to senior citizens through a safe investment in 2004. This scheme ensures a regular income stream for senior citizens in retirement with an assured 9.30 per cent return paid every quarter. The minimum deposit is for Rs 1,000 and the maximum is for Rs 15 lakh with a five year tenure which can be further extended by three years.
Claiming tax benefits does reduce tax liability. However, you should consider the tax slab in which he falls, his existing financial investments which pay him interest and his risk tolerance before considering investing in tax planning options. For instance, the PPF has a 15-year lock-in, which impacts liquidity. Likewise, the need for health insurance should drive him to consider medical insurance and not the tax benefit that it provides. At his age, if he goes in for a health insurance plan, the premium outgo and policy exclusions may far outweigh the policy benefits and tax savings.
Consider all the options available and weigh them based on their merits and utility, along with the available tax benefits before selecting one.