Budget 2018: PM Vaya Vandana Yojana revamped

While no significant tax benefit was proposed for individuals at large in the Union Budget 2018, senior citizens have few things to celebrate for, such as: increase in tax-free interest income, higher deduction for health insurance premium and a revamped senior citizen investment scheme. The higher limit for tax-free interest income from banks and the enhanced investment limit in senior citizens’ investment scheme will help them.

The scheme under consideration is Pradhan Mantri Vaya Vandana Yojana (PMVVY). Let’s read what changes are proposed in it.

The scheme

It has been available for investment since 4 May 2017. The scheme is designed to provide regular pension income to senior citizens, who are aged 60 years or more. There is no maximum age for entry in the scheme. It was earlier open for investment till 3 May 2018. The budget has now proposed to keep it open for investment till March 2020. Apart from extending the scheme’s investment duration, the limit of Rs7.5 lakh per senior citizen would also be enhanced to Rs15 lakh. So now, a couple—if both are senior citizens—can invest up to Rs15 lakh individually, or a maximum Rs30 lakh as a couple in this scheme.

The scheme can be purchased offline as well as online, through the Life Insurance Corporation of India (LIC), which has been given the sole rights to operate it. The scheme provides an assured return of 8% to 8.30% per annum, depending on whether you choose to get your pensions on a monthly, quarterly, half-yearly or yearly basis. For the monthly option, the return is 8% and it is 8.30% for the annual option. The interest earned is taxable. If a pensioner survives the policy term (10 years), its purchase price along with final pension instalments shall be payable. The scheme also allows premature exit or withdrawal for treatment of any critical or terminal illness of self or spouse. On premature exit, 98% of the purchase price shall be refunded. On death of the pensioner during the policy term of 10 years, the purchase price shall be paid to the beneficiary.

Should you buy?

While earlier the maximum pension that an investor would have earned per month under the scheme was Rs5,000—or Rs60,000 a year—it will now increase to up to Rs10,000 a month or Rs1.2 lakh a year. This is at par with other schemes such as Senior Citizens Savings Scheme (SCSS), which offers a similar return of 8.3% per annum. Given that both schemes will have a cap of Rs15 lakh each, senior citizens can consider dividing their retirement corpus and invest in these schemes. In the current interest rate scenario, a fixed return of 8.3% return per annum is a good option.