Senior citizens would be largely happy with the Union Budget 2018-19. With the Finance Minister announcing a slew of measures, ranging from higher tax exemption on interest income and health insurance premium to increasing the limit of investment in the Pradhanmantri Vaya Vandana Yojana (PMVVY), they would be able to earn additional tax-free income and address health concerns.
Senior citizens who are highly dependent on interest income from their fixed deposits and other debt instruments would be relieved with the increase in the tax-free limit on interest income from Rs 10,000 to Rs 50,000. In addition, the tax exemption on health insurance premiums, which stood at Rs 30,000 now, has been increased to Rs 50,000. Also, for treatment of critical illnesses, the limit has been increased to Rs 100,000.
Another concern of senior citizens has been addressed – the falling rate of interest rate in debt instruments. The investment limit in the PMVVY programme has been doubled to Rs 15 lakh. This scheme was launched by the Life Insurance Corporation of India in May 2017 and allowed senior citizens to earn 8 per cent interest. The PMVVY is a pension scheme subsidised by the Government of India. The amount of investment made in the scheme is called the 'purchase price'.
Depending on the pension option (monthly, quarterly, yearly), the scheme is for a period of ten years and based on the amount of investment, it carries fixed and assured pension (return).
PMVVY has a term of ten years and on surviving the date of maturity, the purchase price along with the final pension installment is refunded to the individual. On death during the policy term of 10 years, only the purchase price is refunded to the beneficiary.
There is no tax benefit available on the amount invested. Further, the pension received will be fully taxable in the hands of the individual in the year of receipt. The government, however, has exempted PMVVY from service tax.
However, senior citizens who typically invest in monthly income plans of mutual funds for regular income could be disappointed as there would be a tax of 10 per cent on their dividend income.
* Note: Bank accounts data includes Jan Dhan accounts | Source: Parliament questions, Income Tax Department