Will Budget 2017 Bring Good News For Senior Citizens?

Will Budget 2017 address the needs of senior citizens?

An old man looks up at an electronic screen displaying stock figures at the Bombay Stock Exchange (BSE) in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
An old man looks up at an electronic screen displaying stock figures at the Bombay Stock Exchange (BSE) in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Union Budget 2017-18 is round the corner. We all know that budget announcements are driven as much by fiscal considerations as by political expediency. Hence, it is better to not speculate and wait till the budget day to see if any of your wishes have been granted.

But that should not stop you from getting your wish list ready. There are a few demands that we get to hear about every year.

Tinkering With Exemption Limits

There is perennial demand for increasing the minimum tax exemption limit, from Rs 2.5 lakh to say, Rs 5 lakh. I believe it will be on next year’s list too.

In my opinion, personal income tax rates in India are already quite low. A person earning up to Rs 5 lakh won’t pay more than 4 percent of income as tax. Even that will go down if she chooses to make tax-saving investments. Moreover, the government can’t be expected to let go of a low-hanging fruit. Besides, the tax compliance is quite high in this segment. If the government chooses to relax the minimum tax exemption limit, it may introduce another tax slab rate (say 40 percent) for those earning over say, Rs 25 lakh. Your gain, somebody else’s pain.

There are concerns too. What if long-term capital gains on equity investment become taxable? What if arbitrage funds start getting taxed as debt mutual funds?

But let’s narrow down the wish list and look at a few announcements that senior citizens, in particular, will find useful.

Addressing The Needs Of Senior Citizens

Inflation and poor health can be your biggest enemy during retirement. It is no surprise that the actual inflation you experience is much higher than headline inflation numbers. The other important issue is to lock in interest rate for the long term. Currently, the only way is to purchase an annuity product or a 10-year fixed deposit, where the low post-tax return nullifies the benefit of locking in the interest rate for a long term. Tax-free bond issuances are few and far between.

Better Tax Benefits For Health Insurance

The biggest uncertainty to the retirement corpus comes from medical exigencies. One way to guard your finances against such emergency is by purchasing a health insurance cover. Currently, the health insurance premium for a senior citizen is eligible for deduction to the extent of Rs 30,000. This limit includes the cover for spouse too (if you are paying for your spouse).

Currently, the premium for Rs 5 lakh cover for a senior citizen couple will easily exceed Rs 30,000. This limit must be increased. The deduction under Section 80D for premium paid for senior citizens should be increased from the Rs 30,000 per annum to Rs 75,000 per annum.

Another relief could be to abolish service tax on health insurance premium for senior citizens. This will bring down the premium by 15 percent flat. However, this is highly unlikely given we are moving towards Goods and Services Tax (GST).

Fillip To Post-Tax Returns

The Finance Minister could consider making interest and annuity/pension income up to Rs 1.5 lacs tax-free for senior citizens. This should include all kind of fixed return products such as bank FDs, savings account, Non-Convertible Debentures, Senior Citizen Savings Scheme etc. This will boost the post-tax returns for senior citizens. This limit can be increased to Rs 3 lakh for very senior citizens (above 80 years).

Ease In Exemption Limit

Budget 2017 could increase minimum tax exemption limit for senior citizens to Rs 5 lakh from the current threshold of Rs 3 lakh. An increase in this threshold will result in additional tax savings of Rs 20,000 per annum. Threshold for very senior citizens can be enhanced to Rs 7.5 lakh.

Increase Tenure For SCSS

The tenure for Senior Citizen Savings Scheme (SCSS) deposits could be increased from 5 years to 10 years. With this, an investor can lock-in interest rate for 10 years. Bank fixed deposits and annuity products typically provide lower returns than SCSS deposits.

Though the Prime Minister announced a new scheme for Senior Citizens on New Year’s Eve, where they can earn 8 percent per annum for deposits of up to Rs 7.5 lakh for 10 years, there is no need for an additional product. Increase in tenure of SCSS and making interest payment monthly (instead of quarterly) will serve the purpose just as well.

Exemption From TDS Deductions

Historically, senior citizens have been most comfortable investing in bank fixed deposits. Many rely on interest income for their monthly expenses. If the interest income on fixed deposits exceeds Rs 10,000 in a financial year, the bank deducts tax deducted at source (TDS) at 10 percent. You have an option to submit Form 15G or 15H to avoid TDS. This is a hassle for most senior citizens. The government should do away with TDS deduction on interest payment to senior citizens.

You have to be extremely optimistic to expect the Finance Minister to grant all the wishes but it would be great to see him make a few concessions along similar lines.

Deepesh Raghaw is a SEBI Registered Investment Adviser and writes on personal finance issues.

The views expressed here are those of the author’s and do not necessarily represent the views of Bloomberg Quint or its editorial team.