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Confusion about the golden years

Arnav Pandya 

When one retires, one wants to live a peaceful life. But it is surprising how simple things can complicate and confuse matters. For instance, the simple definition of a senior citizens is interpreted differently by different organisations. That is, an company considers a person who is 55 as a senior citizen. However, the income tax department defines senior citizens as someone who is 65. Confused? Yes, it is truly ridiculous because these classifications have financial implications.

The following are five areas that can impact your finances being a senior citizen:

Income tax: Income tax is one area where the benefits provided to senior citizens starts at Rs 2.25 lakh (the highest bracket). But the qualifying age is 65 years. Here, the government not allows more money at their hands, but also makes leeway for bigger deductions. Take medical as an example.

Senior citizens policies are more expensive and government does consider this. As a result, the deductible amount for senior citizen’s policy is Rs 20,000. This is Rs 5,000 higher than what a younger person would pay. As a senior citizen if you fall in the highest tax bracket, this would still amount to a tax saving of Rs 1,500.

The income tax department has also kept the basic exemption high. For men, there is no tax on the income of Rs 150,000. But senior citizens are exempted for tax if their income is less than Rs 225,000. This translates into a savings of Rs 7,500 in taxes.

Even if you compare the exemption limit of women senior citizens with a younger one, the tax benefit works out to be Rs 4,500. The basic exemption limit for women is Rs 180,000.

But before you qualify as senior citizen for tax purpose, there are other areas where you can reap the benefit much earlier.

Rail fare concession: Indian Railways too provides concessional fares for elderly. An individual who has attained the age of 60 can avail this concession.

On the total fare, a male senior citizen gets up to 30 per cent concession and a female senior citizen can avail up to 50 per cent. The savings in absolute terms depends upon the length of the journey and the class. The benefit could range from hundred to a few thousand rupees.

The railways also consider women as senior citizens from 45 years of age. But classification is only for ease of travelling. The railways keep a separate quota for people in their golden years. There is no concession till the person completes 60 years of age.

This discount may not sound too attractive but it has an impact on your finances. It reduces cost of travel and in turn brings down pressure on the budget.

Bank deposits: This is an area where elderly get to earn more on their investments. Banks offer a higher rate of interest for fixed deposits senior citizens. The offering is 0.5-0.75 per cent more than the prevalent interest rates. The minimum age to get a premium on your deposit is 60.

A younger age group person too can enjoy this benefit if open a joint account with a senior citizen. But deposit needs to be in the name of the elder one.

Let’s look at the maths of this offering. If an elderly invests Rs 50,000 for a 3-year year tenure at an interest rate of 9 per cent for regular rates and 9.5 per cent for senior citizen. On maturity, the elderly will get Rs 965 more. If a senior citizen opts for quarterly payout of interest, then he earns Rs 750 more.

Government employees (central as well as state) get some relaxation on retirement if they open a deposit with nationalised banks. Public sector banks give interest at par with senior citizens, if government employees invest the money received from the employer within 3-months of getting the cheque.

Senior citizen savings scheme: The annualised interest rate in the

Senior Citizens Savings Scheme (SCSS) is 9 per cent. The entry age for this scheme is the same as the required for fixed deposit, that is, 60. But the government has given some leeway for retirees. A person who is retiring and has crossed 55 years of age is allowed to invest in this scheme, if the money is invested within a month of receiving the amount from the employer. The tenure of this deposit is 5 years.

Insurance: When it comes to insurance, especially health, it gets difficult for senior citizens to get an adequate cover. Most of the insurance companies do not provide insurance for person above 55 years of age.

Some that provide cover, charge an exorbitant amount. The argument is that the risk of claims increases with age. To get an adequate cover, elderly have to run from one company to the other. Few insurers have started policies specifically for senior citizens, which starts at the age of 55.

First Published: Sun, April 05 2009. 00:55 IST