As a senior citizen, you may be looking for ways to save tax on your income and also earn a decent return on your investments. There are many investment options available for senior citizens in India, but not all of them are equally beneficial in terms of tax-saving and returns. In this post from GrowWise, we will discuss some of the best tax-saving investments for senior citizens in 2024, based on their risk profile, goals and liquidity needs.

Senior Citizens’ Savings Scheme (SCSS)

SCSS is one of the most popular tax-saving schemes for senior citizens in India. It is a government-backed scheme that offers a fixed interest rate of 7.4% per annum (as of January 2024), payable quarterly. The scheme has a tenure of 5 years, which can be extended by another 3 years. The minimum investment amount is Rs 1,000 and the maximum is Rs 15 lakh. You can open an SCSS account at any post office or designated bank branch.

The main benefits of SCSS are:

  • It offers a high and assured return compared to other fixed-income options.
  • It is eligible for tax deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakh per year.
  • It is a safe and secure investment as it is backed by the government.
  • It provides regular income through quarterly interest payments.

The main drawbacks of SCSS are:

  • It has a lock-in period of 5 years, which reduces liquidity.
  • It has a premature withdrawal penalty of 1.5% if withdrawn before 2 years and 1% if withdrawn after 2 years but before maturity.
  • The interest income is taxable as per your tax slab.

Equity-Linked Savings Scheme (ELSS)

ELSS is a type of mutual fund that invests at least 80% of its assets in equity and equity-related instruments. It is a market-linked investment that offers the potential to earn higher returns than fixed-income options. However, it also carries higher risk and volatility. The scheme has a lock-in period of 3 years, which is the shortest among all tax-saving options.

The main benefits of ELSS are:

  • It offers the possibility of capital appreciation and wealth creation over the long term.
  • It is eligible for tax deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakh per year.
  • It has a low lock-in period of 3 years, which enhances liquidity.
  • The long-term capital gains (LTCG) from ELSS are taxed at 10% if they exceed Rs 1 lakh in a financial year.

The main drawbacks of ELSS are:

  • It is subject to market risk and fluctuations, which may affect your returns.
  • It does not provide any guaranteed or fixed return.
  • It may not be suitable for conservative or risk-averse investors.

National Pension System (NPS)

NPS is a voluntary pension scheme that allows you to save for your retirement. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). You can open an NPS account online or offline through any registered point of presence (POP). You can choose between two types of accounts: Tier I and Tier II. Tier I is the mandatory account that offers tax benefits, while Tier II is an optional account that does not offer any tax benefits but allows more flexibility in terms of withdrawals.

The main benefits of NPS are:

  • It helps you build a retirement corpus through regular contributions and market-linked returns.
  • It offers multiple choices in terms of fund managers, asset classes, investment options and withdrawal modes.
  • It is eligible for tax deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakh per year. Additionally, you can claim an extra deduction of Rs 50,000 under Section 80CCD(1B), over and above the Section 80C limit.
  • The maturity amount (60% of the corpus) is tax-free if you invest it in an annuity plan. The remaining 40% has to be compulsorily invested in an annuity plan that provides regular income after retirement.

The main drawbacks of NPS are:

  • It has a long lock-in period until retirement age (60 years), which reduces liquidity.
  • It has a limited exposure to equity (up to 50%), which may affect your returns.
  • The annuity income is taxable as per your tax slab.

Bank Fixed Deposits (FDs)

Bank FDs are one of the most common and traditional investment options for senior citizens in India. They are deposits made with banks for a fixed tenure and interest

rate. They are safe and secure investments that provide assured returns. However, they are not very tax-efficient and offer low returns compared to other options.

The main benefits of bank FDs are:

  • They offer a fixed and guaranteed return irrespective of market conditions.
  • They are eligible for tax deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakh per year, if they have a tenure of at least 5 years.
  • They are highly liquid and can be withdrawn at any time (subject to penalty).
  • They are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), up to Rs 5 lakh per depositor per bank.

The main drawbacks of bank FDs are:

  • They offer low returns compared to other tax-saving options, especially after accounting for inflation and tax.
  • The interest income is taxable as per your tax slab and is subject to TDS (tax deducted at source) if it exceeds Rs 40,000 in a financial year (Rs 50,000 for senior citizens).
  • They have a lock-in period of 5 years for tax-saving purposes, which reduces liquidity.

Public Provident Fund (PPF)

PPF is another popular tax-saving scheme for senior citizens in India. It is a government-backed scheme that offers a fixed interest rate of 7.1% per annum (as of January 2024), compounded annually. The scheme has a tenure of 15 years, which can be extended by another 5 years. The minimum investment amount is Rs 500 and the maximum is Rs 1.5 lakh per year. You can open a PPF account at any post office or designated bank branch.

The main benefits of PPF are:

  • It offers a high and assured return compared to other fixed-income options.
  • It is eligible for tax deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakh per year.
  • It is a safe and secure investment as it is backed by the government.
  • It provides long-term savings and wealth creation through compounding effect.
  • The interest income and the maturity amount are tax-free.

The main drawbacks of PPF are:

  • It has a long lock-in period of 15 years, which reduces liquidity.
  • It has a limited number of withdrawals (one per year from the seventh year) and loans (up to 25% of the balance from the third year).
  • The interest rate is subject to change every quarter by the government.

Comparison Table

Here is a comparison table of the above-mentioned tax-saving investments for senior citizens in 2024:

Investment Option Interest Rate Tenure Tax Deduction Taxation Risk Liquidity
SCSS 7.4% 5 years Up to Rs 1.5 lakh under Section 80C Interest income taxable as per slab Low Low
ELSS Market-linked 3 years Up to Rs 1.5 lakh under Section 80C LTCG taxed at 10% if exceed Rs 1 lakh High Medium
NPS Market-linked Till retirement age (60 years) Up to Rs 2 lakh under Section 80C and Section 80CCD(1B) Maturity amount (60%) tax-free if invested in annuity, annuity income taxable as per slab Medium Low
Bank FDs Varies across banks 5 years Up to Rs 1.5 lakh under Section 80C Interest income taxable as per slab and subject to TDS Low Medium
PPF 7.1% 15 years Up to Rs 1.5 lakh under Section 80C Interest income and maturity amount tax-free Low Low

Conclusion

As you can see, there are various tax-saving investments for senior citizens in India, each with its own pros and cons. You should choose the one that suits your risk appetite, financial goals and liquidity needs. You should also diversify your portfolio across different asset classes to optimize your returns and reduce your risk. Remember, tax-saving is not the only objective of investing; you should also aim for wealth creation and financial security in your golden years.

We hope this blog post has helped you understand the best tax-saving investments for senior citizens in 2024. If you have any queries or feedback, please feel free to comment below.

Please note:

  • GrowWise is not registered with the Securities and Exchange Board of India (SEBI) as an investment advisor, research analyst, or portfolio manager.
  • The information published on this blog is presented for educational purposes only and should not be construed as financial advice.
  • We strongly recommend that you seek the advice of a qualified financial advisor before making any investment decisions.