Budget 2023-Impact 5: Tax savings through Senior Citizen Schemes

Before going to the main topic of Senior Citizen, let me write on reduced Surcharge.

Mr Ramana is a highly paid senior executive in Microsoft India. He is getting a salary of Rs.6 Crore per year. If asked which tax regime benefits him, without thinking twice, you can say New Tax Regime.

The reason is that if an individual’s taxable income is over Rs. 5 Crore per year, the Surcharge is reduced from 37% to 25% under the New Tax Regime. (Please note the Surcharge will remain at 37% if one opts for Old Tax Regime). In Ramana’s case, under the new tax regime, he will pay a tax of Rs.2.30 Crores against Rs.2.43 Crores under the old regime, with a net saving of Rs.13 Lakhs.

Senior Citizen Savings Scheme (SCSS)

Senior Citizen for this purpose is the one who has attained the age of 60 on the date of opening the account. The SCSS has a maturity period of 5 years, which can be extended by an additional three years.

What are the proposed changes in the Budget?

Till 31st March 2023, a Senior Citizen can invest a maximum of Rs.15 Lakhs in SCSS.

Proposed changes from 1st April 2023 – investment can go up to Rs.30 Lakhs per person

Why is it considered a helpful amendment?  

The interest rate on SCSS is 8% per year, slightly more than the regular Fixed Deposit Rates in the bank. The deposit is a Government of India Scheme, so it has the highest safety. Interest is paid quarterly, which will help the seniors meet their personal needs. However, like in the bank deposit, the interest earned in SCSS also is taxable!

Hello Children – Do you have deposits, say, Rs.80 Lakhs, in your account? Do you want to save taxes? I have a simple suggestion for you:  If you are supporting your parents, probably, gift them Rs.30 Lakhs each, let them park money in their name in SCSS and earn a decent income of Rs.20,000 each per month. Let them have the satisfaction of having an independent source of money regularly. (It is good if you don’t ask how they spend it)

Your tax burden to the tune of Rs.1,50,000 is also reduced. If you are worried about the safety of your money, you can be a joint account holder in SCSS, for which you need not be a senior citizen!!! Or you can be the nominee for the deposit.

Similar enhanced limits are fixed for Monthly Income Scheme (MIS) from Rs.4,50,000 to Rs.9,00,000 per person. This is also a welcome change in the Budget. This scheme earns a secured return of 7.1%

Mahila Samman Savings Scheme (MSSS):  A one-time savings scheme where women or girls of any age can deposit up to Rs.2 Lakhs for a period of 2 years and earn a secured return of 7.50% per year.

So to summarise, if Mr Arvind allocates Rs.80,00,000, which he currently holds in Fixed Deposit/Liquid Funds/bonds among the above three schemes (SCSS, MIS, MSSS), two things can be achieved. (a) He can save up to Rs.1,75,000 in taxes annually and (b) Invest in secured investment, which earns a higher interest rate. Win-Win for both children and parents!

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 28+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional, Registered Valuer (F&SA) and Social Auditor.Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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