BEST TAX-SAVING OPTIONS FOR SENIOR CITIZENS IN 2025!
Tax saving is one of the key factors when it comes to savings and investments for middle-class taxpayers and senior citizens. As regards senior citizens, they aim for financial security by investing their money primarily in non-market-linked products, which give them a sense of safety in times of volatile stock markets. Another key aspect of money management by senior citizens is that their income sources shrink once they retire from their jobs, prompting them to look for the best saving options available.
Good tax planning not only minimises tax liability but also helps in achieving financial objectives. Under the Old Tax Regime, the government still offers multiple exemptions and deductions for taxpayers, including senior citizens.
In this story, we will explore the best tax-saving instruments available for senior citizens in 2025. These options also help seniors build a strong retirement plan and live their golden years stress-free.
Best tax-saving options for senior citizens
1) ELSS mutual funds
ELSS funds or equity-linked savings schemes, have emerged as one of the best options for investors who look for investment tools that save tax.
As investing in mutual funds comes with the benefit of both inflation-beating returns and tax savings, ELSS is a great option for senior citizens as well, provided the investment is done strategically in the right funds.
ELSS plans, which are tax-saving mutual funds under Section 80C of the Income Tax Act, 1961, can help save on tax significantly. Investments up to Rs 1.5 lakh in ELSS funds are exempt. One can invest in it through SIP or lump sum.
However, as the name suggests, ELSS funds primarily invest in equities, so they carry a little risk. But overall, ELSS funds not only save tax but also help senior citizens grow their capital.
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2) Tax-saving fixed deposits
Fixed deposits (FDs) have been one of the safest options for senior citizen investors. Banks offer higher than normal interest rates on FDs to senior citizens. FDs not only have a guaranteed return feature but also get insurance coverage up to Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This makes fixed deposits a less risky and more stable return option than equity-linked investments.
Senior citizens can lower their tax liability by investing in tax-saving FDs under the Income Tax Act, 1961. Tax-saving FDs are exempted up to Rs 1.5 lakh. Such FDs come with a lock-in period of 5 years. However, interest earned on FDs is taxable. Usually, the interest rate ranges between 5.5% and 7.75%.
3) Tax-free govt bonds:
For senior citizens, government bonds are a good investment option, as returns from them are tax-exempt and guaranteed at the same time. Investments can be made in these bonds for a tenure of 10 to 15 years. These have good credit ratings, better liquidity, and offer good returns on maturity. These bonds can be bought or sold on exchanges for which one needs to have a demat account.
Considered to be low-risk investments, tax-free government bonds may have lower liquidity due to high demand in the secondary market. These bonds generally offer interest rates in the range of 5.5% to 7.5%, depending on market conditions.
4) Pradhan Mantri Vaya Vandana Yojana
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is the central government’s flagship scheme for senior citizens and was launched with the aim to offer a regular source of income to them.
The scheme enables old age income security for senior citizens through the provision of an assured pension linked to the subscription amount based on a government guarantee to LIC.
The government launched the scheme to provide social security during old age and to protect elderly persons aged 60 and above against a future fall in their interest income due to uncertain market conditions.
Pension is payable at the end of each period during the policy tenure of 10 years as per the frequency of monthly/quarterly/ half-yearly/yearly as chosen by the subscriber at the time of purchase. The minimum purchase price under the scheme is Rs 1.5 lakh for a minimum pension of Rs 1,000 per month. The maximum investment limit under the scheme is Rs 15 lakh.
The pensioner can choose the pension amount or the investment amount. The pension amount under this scheme can range from Rs 1,000 to Rs 10,000 per month, depending on the amount invested.
Also read: 9.5% FD rates! Top 10 banks offering high returns for 3-year fixed deposits – Full list here
5) National Pension System
The National Pension System (NPS) is a government-backed voluntary retirement savings scheme run by the Pension Fund Regulatory and Development Authority (PFRDA). The pension scheme started in 2009 for non-government employees, is now available to all citizens aged 18 to 70 years. Senior citizens aged below 70 years can continue investing in the scheme, which offers tax exemption of up to Rs 1.5 lakh under Sections 80CCE and 80CCD(1). On top of this, contributions up to an additional Rs 50,000 are also exempt under Section 80CCD(1B).
Under NPS, investors can withdraw up to 25% of their contribution amount tax-free. Also, one has to buy an annuity with 40% of their corpus on the maturity of the NPS account and can withdraw a maximum of 60% of the total amount.
6) Insurance
Health insurance is yet another important instrument when it comes to tax savings. Health insurance premiums are tax-exempt under Section 80D. For senior citizens, this exemption limit is up to Rs 30,000, while for non-senior citizens it is up to Rs 20,000.
Insurance plans not only provide you with insurance protection but also give the benefit of tax savings and return on investment if the right plan is selected.
7) Public Provident Fund (PPF)
Public Provident Fund (PPF) is a long-term investment scheme, which is operated by a post office or bank. A minimum of Rs 500 and a maximum of Rs 1.5 lakh can be invested annually in this scheme. Its total duration is 15 years, and partial withdrawal is allowed from the sixth year.
PPF does not provide regular income, but its maturity benefit is completely tax-free. It is one of the safest investment schemes available for all citizens.
Conclusion:
The time of retirement brings with it both benefits and challenges. Hence, it is essential to have in place a good investment plan for a stress-free retirement. If you want to have a strong retirement plan for the future, consider investing in these schemes as per your needs.
2025-01-22T08:38:26Z