One of the good aspects of the current year budget has been the focus on senior citizens. While the tax slabs have not been changed, the exemption of interest income up to 50000 Rs is a good thing for all of them. Another benefit is the extension of Vaya Vandana Yojana for 2 years and changes in the terms.
The VVY was introduced last year and had interest payment up to 8.3 % annually on investment up to 7.5 lac Rs per senior citizen. Now it has been made 15 lacs maximum with flexibility of withdrawal in case of Medical emergencies. The monthly interest is 8 % and the annual yield goes to 8.3 %. You can buy it online or offline through LIC.
How should senior citizens use this? Well, you can invest up to 30 lacs in it now, for both you and your spouse. Along with the Senior citizen saving scheme, where you can potentially put another 30 lacs, this will give you a total interest income of 40000 Rs per month. While all of this is taxable, the tax incidence is practically zero for the couple.
This is something that all senior citizens should take advantage of. With a regular income of 40000 Rs per month assured, they can now think of putting the rest of their money in other mutual funds of different types to add to their income. In case they have a PPF account then there is also a possibility of withdrawing money from there in a tax free manner. With some intelligent structuring it will be quite possible to have an income of up to 80000 or so per month, with low tax incidence.
So, if you are a senior citizen and are looking at regular income, go for VVY. Yes, interest rates may rise but it will take a while to catch up to 8 % and a bird in hand is always worth more than two in the bush.
I will outline in the next post how a corpus of 1.5 crores including PPF can be structured for senior citizens to maximise income with low tax incidence.