Senior Citizens can invest in Senior Citizen Saving Scheme, RBI floating rate saving bonds and Pradhan Mantri Vaya Vandana Yojana
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Question: I am retiring in March 2022 with a pension of approx Rs. 30,000 per month and lump sum payment of Rs. 75 lakh. Where can I invest safely to take care of monthly household expenses and earn tax free income?
Answer: At present there is no tax-free instrument available. However, you can buy tax-free bonds issued by various PSU (Public Sector Undertakings) and Reserve Bank of India (RBI) in the past from the stock exchange. These tax free bonds are available at premium to the issue price and are not tax efficient for people who are not in higher tax slabs so I would advise you to invest as under:
Out of your retirement corpus you can invest Rs. 15 lakh in Senior Citizen Saving Scheme which offers you a better rate of 7.40% and which is fixed for the tenure of five years and is paid quarterly. You can invest additional Rs. 15 lakh in Pradhan Mantri Vaya Vandana Yojana which also gives you 7.40% p.a. fixed for ten years.
The balance can be invested in RBI floating rate saving bonds. without any limit and which are equally safe and at the same time offer you better returns than other similar products available in the market. The interest on these bonds is reviewed half yearly. These bonds have a tenure of 7 years. Presently these bonds offer 7.15% annual interest. The interest on these bonds is payable half yearly and the rate is bench marked against interest payable on National Saving Certificates (NSC).
The interest rate will always be 0.35% higher than interest on NSC applicable at the time of revision of interest rate. In the present circumstances these are the best option possible looking at the fact that you cannot risk your capital. Income from all the investment instruments stated are taxable and except for Pradhan Mantri Vay Vandana Yojana tax will also be deducted at source on the interest payable. You can submit form no. 15G for payment of interest without deduction of tax if you satisfy the eligibility conditions.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail and @jainbalwant on Twitter.com.