, ECONOMICTIMES.COM|
Aug 31, 2016, 11.2 AM IST
Age is just a number. Just ask someone nearing 60, and you will probably get this response. As a senior citizen, one gets numerous financial benefits from the government and even private companies. Some advantages kick in after you turn 60, while some at 65. Let's look at some benefits for senior citizens under various categories.
Higher limit of deduction for medical insurance premium
It is widely believed that for senior citizens, the probability of higher medical expenses is more than younger family members. Seniors get extra tax benefit on buying health covers.
Premium paid towards a health insurance policy (including critical illness or any other health plan) qualifies for tax benefits under Section 80D of the Income Tax Act. The premium paid towards health riders in a life insurance policy also qualifies for tax benefit under the section.
The benefit is available to individuals on the premium paid for self, spouse, children and also includes parents. Importantly, the benefit is available irrespective of whether or not the children or parents are dependent.
For income tax calculation purpose, the Income Tax Department considers 60 as senior citizens age and 80 as very senior citizens age.
Senior Citizens' Saving Scheme
Probably the first choice of most retirees, Senior Citizens' Saving Scheme (SCSS) is a must-have in most retirees' investment portfolio. As the name suggests, this scheme is available only to senior citizens or early retirees. SCSS can be availed from a post office or a bank by anyone above 60. Early retirees can invest in SCSS, provided they do so within three months of receiving retirement funds. SCSS has a five-year tenure, but it can be extended for three years after the scheme matures.
The quantum of tax benefit, however, depends on the age of the individual who is medically insured. On the premium towards self, spouse, children and parents, the maximum deduction that can be availed is capped at Rs 25,000 a year, provided the individual's age is not above 60. If the premium paid by individual is towards a health policy for his or her parents (senior citizens in the 60 or above bracket), the maximum is capped at Rs 30,000.
A taxpayer may, therefore, maximise tax benefit under Section 80D to a total of Rs 55,000 if he is below 60 and his parents are above 60. For those taxpayers who are either 60 or above and who are also paying premium for their parents, the maximum tax benefit under Section 80D would, therefore, be a total of Rs 60,000.
In most health insurance plans, the maximum entry age is 65. But it's better to buy before that age as, by law, all plans are now supposed to run for lifetime.
A taxpayer may, therefore, maximise tax benefit under Section 80D to a total of Rs 55,000 if he is below 60 and his parents are above 60. For those taxpayers who are either 60 or above and who are also paying premium for their parents, the maximum tax benefit under Section 80D would, therefore, be a total of Rs 60,000.
In most health insurance plans, the maximum entry age is 65. But it's better to buy before that age as, by law, all plans are now supposed to run for lifetime.
If you're retiring with an employer provided health cover, try to port it rather than go for a new one. If you buy a senior citizen health plan, the entry age may be higher but the plan could be restrictive, i.e., the sum assured could have a lower upper limit and there may be co-payment clauses.
Higher tax exemption limit
For income tax calculation purpose, the Income Tax Department considers 60 as senior citizens age and 80 as very senior citizens age.
In case of a resident senior citizen (who is 60 or above at any time during the previous year but less than 80 on the last day of the previous year), income up to Rs 3 lakh is exempt from tax, income from Rs 3 lakh to Rs 5 lakh is taxed at 10%, from Rs 5 lakh to Rs 10 lakh at 20%, and above Rs 10 lakh at 30%.
In case of a resident super senior citizen (who is 80 or above at any time during the previous year), income up to Rs 5 lakh is exempt from tax, income from Rs 5 lakh to Rs 10 lakh is taxed at 20%, and above Rs 10 lakh at 30%. The amount of income tax and the applicable surcharge (15% of such tax, where total income exceeds Rs 1 crore) shall be further increased by education cess and secondary and higher education cess totalling 3 per cent of the total tax payable.
For those whose birth date falls on April1, there was confusion for quite some time. The Central Board of Direct Taxes (CBDT) has recently clarified that while considering the higher exemption limit of tax liability for senior and very senior citizens, a person will be considered to have attained a particular age on March 31 if his or her birth date is a day later on April 1.
Avoiding tax at source
Senior citizens who maintain fixed deposits (FDs) with a bank need to be careful. If the interest income earned on a bank deposit (including recurring deposits, deposits in other branches of the same bank, deposits in a minor's name) exceeds Rs 10,000 in a financial year, the banks deduct tax at source (TDS) of 10 per cent on the entire interest income. In case of company FDs, TDS is applicable when interest income exceeds Rs 5,000 a year.
Senior citizens who maintain fixed deposits (FDs) with a bank need to be careful. If the interest income earned on a bank deposit (including recurring deposits, deposits in other branches of the same bank, deposits in a minor's name) exceeds Rs 10,000 in a financial year, the banks deduct tax at source (TDS) of 10 per cent on the entire interest income. In case of company FDs, TDS is applicable when interest income exceeds Rs 5,000 a year.
To avoid TDS and in instances where the income is less than the exempted limit, one can fill a bank declaration. This benefit is applicable to all, but the declaration has to be in a different form.
As a senior citizen, if the total income in a financial year is within the exemption limit, Form 15H (Form 15G is for non-senior citizens) may be submitted by the depositor to the bank for not deducting TDS. Remember, if the deposits are for more than a year, one has to submit these forms every year ideally in April.
Probably the first choice of most retirees, Senior Citizens' Saving Scheme (SCSS) is a must-have in most retirees' investment portfolio. As the name suggests, this scheme is available only to senior citizens or early retirees. SCSS can be availed from a post office or a bank by anyone above 60. Early retirees can invest in SCSS, provided they do so within three months of receiving retirement funds. SCSS has a five-year tenure, but it can be extended for three years after the scheme matures.
Currently, the interest rate in SCSS is 8.6 per cent per annum, payable quarterly and fully taxable. The rates are set each quarter linked to the G-sec rates with a spread of 100 basis points. Once invested, the rates remain fixed for the entire tenure. SCSS, perhaps, currently offers the highest post-tax returns among all comparable fixed income taxable products. The upper investment limit is Rs 15 lakh and one may open more than one account. The capital invested and the interest payout, which is assured, has sovereign guarantee. What's more, it also offers tax benefits under Section 80C and allows premature withdrawals.
Extra on bank FDs
Bank FDs offered to senior citizens who are 60 and above come with additional interest. Most banks offer 0.5 per cent extra on the rack rate of the duration chosen by them. The higher rate is also for any tax-saving deposit opened in the bank. At the time of initial deposit, proof of age is required to be submitted to the bank. Similar to SCSS, the interest rate is fully taxable but option to take monthly interest exists in them.
Passports
Normally, police verification is done before the passport is issued. In case of senior citizens, it can be done post-issuance subject to condition. Senior citizens can be issued a passport on post police verification basis if they submit a copy of the passport of their child (above 18) staying abroad (with a page having their name) as an additional document along with their application form.
In some Passport Seva Kendras, senior citizens who have applied for fresh or re-issue of passports are allowed to submit their applications as 'walk-in' applicants. They do not need online appointment but are required to register their applications online and obtain Application Reference Number, or ARN, at least 24 hours in advance. No prior appointment is needed but the applications are accepted on first-come, first-serve basis.
Pensioners drawing retirement pension or family pension need to mandatorily submit a life certificate. It has to be produced before November 30 each year at the pension drawing banks or the respective post offices.
In 2014, Jeevan Pramaan, an Aadhaar-based digital life certificate for pensioners, was introduced. The certification was launched to do away with the requirement of a pensioner having to submit a physical life certificate each year to ensure continuity of his or her pension. Jeevan Pramaan is an optional system and about 9.27 lakh pensioners have already registered for it, according to an official data. However, the programme may soon be scrapped owing to privacy issues.
Several banks offer home loans to senior citizens provided they maintain a pension account. Typically, loan amount is equal to about 50 times of monthly pension/income (in case of pensioners and salaried persons) or 4 times average gross annual income (in case of pensioners who later become professionals and self-employed persons) with a maximum of Rs 75 lakh. Banks ensure that Equated Monthly Installment, or EMI, remains at about 50 per cent of net take-home income. The loan tenure is mostly a maximum of 15 years or up to the age of 75 of borrower (whichever is earlier). There could be lower processing fees for them as well.
Some banks even offer personal loans to mainly government pensioners provided they maintain a pension account. Generally, depending on age, the loan amount equals to 18-36 months' pension with a cap of about Rs 14 lakh.
Flights
Discounts for seniors in flights may not be a permanent affair. Airlines do, however, keep coming out with offers. SpiceJet's on-going offer is a flat 15% off on the base fare for senior citizens. The booking and travel period for the offer is scheduled between July 15 and September 30, 2016 and is applicable for senior citizens above 60.
Railways
When it comes to commuting by trains, Indian Railways provides a flat 40 per cent rebate to male senior citizens and a flat 50 per cent rebate to female senior citizens on fares in all classes, i.e., Sleeper Class, First Class and First Class AC in all trains, including Shatabdi and Rajdhani. The minimum age defined for male senior citizens who can avail this particular rebate is 60, while for female senior citizens it is 58.
Eager to reduce its huge subsidy burden, Indian Railways has now given senior citizens the option of foregoing concession on purchase of reserved class tickets. A senior citizen would automatically get the concession upon filling up age-related information in the form for buying tickets, but now they have the option of giving it up.
Senior citizens need to be careful when offers and discounts are offered to them, especially from private institutions. Prominence should be given to the safety of their money and not short-term advantages. There could be several fly-by-night operators looking for them to fall prey to their deals. Remember, it's their lifetime earnings which will be at stake if the offers are not properly evaluated.
