Union Budget 2021 Expectations for Senior Citizens: In almost every budget exercise, the government has been taking steps to make a positive impact on the lives of senior citizens. As always, the Budget 2021, to be announced by Finance Minister Nirmala Sitharaman, will be keenly watched by the senior citizens. The government and the RBI have been taking steps to keep the interest rate low to aid growth in the country. And, this is hurting the retired investors as falling interest rates in 2020 have hit them. Most senior citizens bank upon fixed income investments to meet their regular income needs. Bank fixed deposits, probably the first choice of most senior citizens, is currently offering a rate of interest of less than 6 per cent per annum across different tenure.
Further, the interest income earned from bank fixed deposits is taxable in the hands of the investor. “In the last couple of years interest rates on fixed income came down drastically, as a result, most senior citizens suffered a loss of income. The government should enhance some of the tax breaks, including increasing the exemption limit on interest income for senior citizens so that some portion of their income can be restored,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm which caters exclusively to the Armed Forces officers and their families.
Exempting pension income
Still, a bigger factor is about the taxability of the income earned by investors on the investments. The senior citizens, especially those who are retired, need a regular income to meet their household expenses. Those who are 60 years or above have several investments to choose from, but not all of them provide regular interest payments on the deposits. Some senior citizen investment options providing regular income payments include bank fixed deposits, Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office Monthly Income Scheme (POMIS), Senior Citizen Saving Scheme ( SCSS), Immediate Annuity plans of life insurance companies and Floating Rate Savings Bonds 2020.
The interest income from these investments is taxable in the hands of the investor in the year of receipt. “There is no specific pension or superannuation scheme designed for senior citizens, they must depend on their own investments and interest from FDs for meeting out their day-to-day needs. Hence, it is expected that an introduction of certain schemes tailored towards senior citizens making an income out of the said investment to be exempt while the government can use the same for long-term projects,” says Raghunathan Parthasarathy, Associate Partner – Tax & Regulatory Services, BDO India
Make annuity tax-free
Annuity or pension received from NPS or any other pension scheme is fully taxable. Although the commuted amount is tax-exempt, one needs to pay tax on annuity received on a monthly or yearly basis.
“While commutation of a pension plan annuity is tax-free, there is no tax benefit on the annuity if not commuted. This encourages senior citizens to take a lot of annuity amounts in lump-sum which compromises their life in older years, thus negating the benefits of retirement planning. The government should provide tax-free benefits for an annuity or commuted amount, to bring both on the same scale,” says Col Govila (Retd).