Budget 2021: What's in store for senior citizens?

Depending on their risk appetite, senior citizens invest in FDs, mutual funds, share markets. Some other investment options for senior citizens are National Payment System (NPS), Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office Monthly Income Scheme (POMIS), Atal Pension Yojana (APY), immediate annuity plans of life insurance companies and floating rate savings bonds 2020.

Fixed deposits are considered a go-to investment for most senior citizens due to its safe and secure nature. FDs have, however, lost their popularity of late due to high taxability and low interest rates.

One in a slew of suggestions focussing on senior citizens is to make the Senior Citizens Savings Scheme (SCSS) fully tax-free. SBI economists have suggested making the Senior Citizens Savings Scheme tax-free in the upcoming Union Budget in a recent report. The SBI report said, "Government has an excellent scheme for senior citizens. Under the Senior Citizens Savings Scheme (SCSS), a senior citizen can deposit Rs 15 lakh. However, the interest on Senior Citizens Savings Scheme (SCSS) is fully taxable which is a major drawback of this scheme. We propose full tax rebate of this interest income."

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Besides the complete tax exemption in the SCSS scheme, senior citizens are also expecting some respite in healthcare taxes under Section 80D of the IT Act. However, the government might be able to provide only small changes in taxation instead of a major relief on this front. Deduction under Section 80D is also likely to be expanded to include COVID-19 related expenses. The deduction limit under Section 80D which is Rs 25,000-Rs 1,00,000 can also be increased depending on the age since healthcare costs of senior citizens have increased.   

The senior citizens are also looking towards the Union Finance Minister to make annuity or pension received via National Payment System (NPS) tax-free and allow withdrawals. Annuities on NPS don't come with tax incentives as they are treated as income and taxed as per the slab rate that an individual falls in.

While NPS funds have delivered attractive returns without much risk, their downside is that you can't take out all your savings. An NPS subscriber can only withdraw only 60 per cent of the accumulated corpus while it is mandatory for them to buy annuity with the remaining 40 per cent.

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