Best tax saving investments for senior citizens in 2023

As we age, our financial needs and priorities change. As senior citizens, it becomes important to plan our investments in a way that not only secures our future but helps us save taxes as well. It’s the best time to explore the best tax-saving investments options for senior citizens in 2023.

Tax saving investment options for senior citizens

To help you create a solid retirement plan for a bright future, we’ve covered some of the best investments for senior citizens in India for tax-saving.

S.No.Best Tax-Saving Investment Options for Senior Citizens
1.ELSS Mutual Funds
2.Tax-Savings Fixed Deposits & Recurring Deposits
3.Tax-Free Bonds
4.Pradhan Mantri Vaya Vandana Yojana
5.National Pension System (NPS)
6.Insurance Premiums
7.Public Provident Fund (PPF)
List of Tax free Investments

Tax free investment options – Overview

ELSS Mutual Funds

Investing in mutual funds is by far the best option if you want to build wealth over time. You can begin investing in mutual funds to benefit from the dual benefits of outperforming inflation and tax savings. This can be the best investment for senior citizens if done correctly.

A type of Mutual Fund known as Equity Linked Savings Schemes (ELSS) is an excellent tool for reducing one’s taxable income under Section 80C of the Income Tax Act of 1961. Equity Linked Savings Schemes, also known as ELSS, are Tax-Saving Mutual Funds that allow you to defer up to 46,800 in taxes under Section 80C and have a track record of reliable returns.

Furthermore, investments in ELSS Funds qualify for a tax deduction of up to 1.5 lakhs. Deductions are available for amounts invested through a Systematic Investment Plan (SIP) and a lump sum investment. Because ELSS Funds invest heavily in equity, there is always some risk associated with them.

In addition to capital appreciation, ELSS Funds provide tax benefits. As a result, it is regarded as one of the most effective tax-saving strategies by investors.

Tax saving fixed deposits and recurring deposits

Fixed Deposits and Recurring Deposits are two of the most secure methods of tax savings, which is why they are the most recommended Tax-Saving investment option for senior citizens and the best investment plan for senior citizens.

Furthermore, banks offer pensioners noticeably higher FD and RD interest rates. As a result, and in terms of returns, it is less risky than equity investments. Banks set interest rates, which are influenced by a variety of factors. You can reduce your tax liability by investing in tax-saving Fixed Deposits and Recurring Deposits under the Indian Income Tax Act 1961.

You can also deduct up to 1.5 lakhs from your income by investing in tax-saving Fixed Deposits. These FDs have a 5-year lock-in period and the interest is taxable. Interest rates typically range between 5.5% and 7.75%.

Best tax saving investments for senior citizens in 2023

Tax free bonds

Tax-free bonds are an excellent option for senior citizens who want to outperform and outclass inflation while also receiving a respectable regular income. They are risk-free investments for people in higher tax brackets because they are issued by institutions that the government supports and because interest income is tax-free, as the name implies.

While investing in tax-free bonds with maturities of 10 years or more, the elderly can look for better or stronger credit ratings, greater liquidity, and a higher yield to maturity return.

Investors should be aware that, while interest on tax-free bonds is not taxed, selling tax-free bonds after one year will subject you to long-term capital gains tax at a rate of 10%, based on your income bracket

Pradhan Mantri Vaya Vandana yojana

In 2019, the Pradhan Mantri Vaya Vandana Yojana was launched to provide seniors with a steady source of income. Applications will be accepted until March 31, 2023. This LIC-provided programme has a ten-year term and a monthly income guarantee. The primary goal of the programme is to provide retirees with a regular pension during a period of falling interest rates.

The Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension programme for people over the age of 60. Under this programme, each senior citizen may invest up to Rs. 15 lakh. To purchase the scheme, a lump sum Purchase Price must be paid. The pensioner has the option of selecting either the Purchase Price or the Pension Amount.

It has a one-year term and previously offered a 7.4% interest rate. The pension you will receive under the plan ranges from $1,000 to $10,000 per month, depending on how much you invested.

Please keep in mind that contributions to this plan are not tax deductible under Section 80C. The PMVVY programme, on the other hand, is exempt from the Goods and Services Tax (GST).

National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a voluntary retirement savings programme that offers a selection of pension funds and several investment options because it is managed by the Pension Regulatory and Development Authority (PFRDA).

The NPS is a savings programme for all citizens (18 to 70). A subscriber is eligible for a total tax benefit of up to 1.5 lakhs under Sections 80 CCE and 80 CCD (1). However, only NPS subscribers are eligible for an additional deduction under section 80CCD (1B) for contributions to NPS (Tier I accounts) of up to $50,000.

A tax deduction of up to 25% of the amount withdrawn from contributions by subscribers is also available. Furthermore, NPS allows for tax exemption for annuity purchases made after the age of 60 or for superannuation under section 80CCD (5).

Insurance Premiums

Insurance is always an important component of everyone’s investment strategy due to its numerous benefits. Health insurance is one of the most important types of insurance because it can significantly reduce the costs of medical care if you become ill.

The tax benefits available on health insurance premiums help increase insurance’s popularity in life insurance, earn returns on your investment money, and save taxes if you choose a carefully crafted insurance premium plan.

Such a policy, like a Health Insurance premium, provides tax benefits on the premium paid under Section 80D, making such investments wise. Senior citizens are eligible for a higher deduction cap of up to 30,000, while non-retirees are only eligible for a deduction of 20,000.

Public Provident Fund

A Public Provident Fund is part of the Post Office’s long-term recurring plan. If you haven’t started a PPF account yet, you can still use it if you have a long time frame.

The maximum investment is 1.5 lakhs, the minimum investment is 500 per year. The entire term is 15 years, and you can withdraw according to the rules beginning in the sixth year. It does not provide you with a consistent source of income. The maturity value is completely tax-free.

Because it does not pay regular interest, PPF is the safest recurring investment plan because all proceeds are tax-free when they mature or are withdrawn.

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The Bottom Line

Finally, the retirement age has both advantages and disadvantages. Making a long-term retirement investment strategy is essential for a stress-free retirement.

Assume you want to create a solid retirement plan that not only provides guaranteed investment returns. But also serves as an excellent tax-saving investment option. In that case, you should think about investing in these plans based on your needs. Hope our best tax saving investments for senior citizens.