Senior Citizens Can Get Higher Tax Deductions With Smart Planning
A specific benefit is available for senior citizens under Section 80TTD of the Income Tax Act.
Senior citizens often depend on interest income to meet their regular requirements, post retirement. A lower tax on this income would therefore be beneficial, ensuring they have a higher net amount available to them.
The utilisation of allowances in the Income Tax Act for such individuals can ensure just that.
A specific benefit is available under Section 80TTD of the Income Tax Act.
Here’s a look at the fine print of the section:
Overall Deduction
The benefit under Section 80TTD is a deduction on interest earned on deposits. This means that the amount that is being claimed can be reduced from an individual’s taxable income. The total deduction available under this section amounts to Rs 50,000 in a financial year.
To claim this, an individual needs to be a senior citizen, that is older than 60 years of age. Additionally, only an individual who is a resident as per the tax laws can avail of the benefit.
Conditionality On Interest Earned
Two key conditions need to be understood with respect to the interest earned by the individual.
The first one relates to the entity with which the deposit has been made. To avail of the benefit, individuals must invest in deposits with a bank—nationalised or co-operative—or the Post Office. Deposits with other entities do not qualify.
The second condition relates to the nature of the deposit. Here the scope is quite wide, covering fixed deposits as well as savings accounts.
Post Office Exemption Is Additional
Interest earned on deposits with the Post Office are also covered under this deduction. But this is beyond the benefit already available on such deposits.
Interest of up to Rs 3,500 earned in a year in a single or individual account or Rs 7,000 a year in a joint account is tax-free.
The amount that can be claimed as a deduction under Section 80TTD is over and above this amount.
Investment Planning
Senior citizens should aim to earn the highest net return from their investments. They should ensure that the interest they earn in a year is at least Rs 50,000 to avail of the benefits of Section 80TTD.
Other lucrative options like the Senior Citizens' Savings Scheme and the Pradhan Mantri Vaya Vandana Yojana, run by the Life Insurance Corp. of India, can also be considered.
These offer a higher rate of interest, but it is taxable. The right balance in the portfolio will lead to maximisation of both tax benefits and returns.
(Arnav Pandya is founder of Moneyeduschool.)