From April 1, senior citizens will get higher interest income exemption limit on deposits in banks and post offices, including recurring deposits. A present, a deduction up to Rs. 10,000 is allowed under Section 80TTA of the Income Tax Act to an individual in respect of interest income from a savings account. In Budget 2018, the government has proposed to include a new Section 80TTB under income tax laws that will allow a deduction up to Rs. 50,000 in respect of interest income from deposits held by senior citizens. But no deduction under Section 80TTA shall be allowed for senior citizens.
(Read: 10 Income Tax Rules That Will Change From April 1)
Bank Fixed Deposits or Bank FDs
A guaranteed interest income is what makes bank fixed deposit on of the most popular investment schemes for earning a regular monthly income. Some banks offer fixed deposits with maturity up to 10 years. Recently, the country's largest bank raised interest rate on bank fixed deposits, signalling a hardening of the interest rate in the overall banking system. Many other banks are expected to hike interest rate on bank fixed deposits. Interest income from bank deposits are added to one's income and taxed according to their respective tax slabs. Banks deduct TDS at 10 per cent on the interest earned in case the interest income for a year exceeds Rs. 10,000.
Post Office Monthly Income Scheme or Post Office MIS
The Monthly Income Scheme (MIS) offered by Department of Posts currently offers an interest rate of 7.3 per cent per annum, payable monthly. The interest is paid on a monthly basis commencing from the date of deposit under the Post Office Monthly Income Scheme (MIS). Maximum investment limit is Rs 4.5 lakh in single account and Rs 9 lakh in joint account. The maturity period of Post Office Monthly Income Scheme is five years.
Read: Post Office Monthly Income Scheme: Interest Rate, Maximum Amount And Other Details
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Pradhan Mantri Vaya Vandana Yojana, a scheme meant for senior citizens, offers a guaranteed interest rate of 8 per cent. LIC or Life Insurance Corporation operates the government's 8 per cent pension scheme for senior citizens, which is called Pradhan Mantri Vaya Vandana Yojana (PMVVY). In Budget 2018, Finance Minister Arun Jatiley proposed to increase the investment limit in Pradhan Mantri Vaya Vandana Yojana or PMVVY to Rs. 15 lakh from Rs. 7.5 lakh. He also proposed to extend the Pradhan Mantri Vaya Vandana (PMVVY) scheme till March 2020.
Pradhan Mantri Vaya Vandana Yojana provides an assured return of 8 per cent per annum payable monthly (equivalent to 8.30 per cent per annum) for 10 years. The pension is payable at the end of each period, during the policy term of 10 years, as per the frequency of monthly/quarterly/half-yearly/yearly mode as chosen by the pensioner at the time of purchase. Currently, in the monthly mode, an investor in the PMVVY scheme gets a monthly interest rate of Rs. 5,000 if he/she invests Rs. 7.5 lakh.
(Read: Investment Limit Of 8% Senior Citizen Scheme To Get Doubled)
Senior Citizen Savings Scheme
Senior Citizens Savings Scheme, 2014, is a deposit scheme for individuals who have attained the age of 60 years. But persons retiring on superannuation or under any Voluntary Retirement Scheme (VRS) who have attained the age of 55 years and retiring defense personnel who have attained the age of 50 years can also open the account subject to certain conditions. The upper limit of investment under this scheme is Rs 15 lakh. The rate of interest under the scheme for the quarter January-March quarter is 8.3 per cent. The deposits made in the scheme are exempt from income tax under section 80C of Income Tax Act, 1961. However, the interest earned on the deposit is not exempt from income tax. Provisions of Tax Deduction at Source (TDS) are applicable to the Scheme.
(Read: Senior Citizen Savings Scheme Vs PMVVY Vs Post Office MIS)
Earnings Regular Income From Mutual Fund Investments
SWP or systematic withdrawal plans of mutual funds help investors earn a regular income from their investments. Under the SWP or systematic withdrawal plan, you need to specify a certain fixed amount as a monthly payout. Then on a designated date, units amounting to that amount would be redeemed. Many mutual funds offer a dividend option but remember that dividends are not guaranteed. It is distributed from gains made by the scheme, which is market linked, or in other words, determined by fund performance and market movements.
(Read: How To Earn Monthly Regular Income By Investing In Mutual Funds)
Investments in debt funds are considered long term only if they are held for more than three years. The long-term capital gain on debt funds is taxed at the rate of 20 per cent. However, investors get the benefit of indexation on their original investment. This means that the original investment is adjusted for the price of inflation and taxed accordingly. Since the original cost of investment goes up after factoring in inflation, long term capital gains tax comes to negligible levels. But if debt mutual fund investments are redeemed before three years, the short-term gains are taxed according to the investor's tax slab. Also in this year's Budget, the government proposed imposition of a 10 per cent long-term capital gains tax on equities on gains in excess of Rs 1 lakh. Also, the government proposed a 10 per cent Dividend Distribution tax (DDT) on dividend options of equity funds.