INSECURE: A decade ago the interest rate of fixed deposits in public sector banks at 15% was comforting security for senior citizens. The rate of interest has fallen to as low as 4% now and other rates of savings have also registered a steep fall.

By Arvind Pinto

With the sharp fall in saving rates including those who have fixed deposits, postal savings and provident funds, the economic security of senior citizens has worsened. Indeed, those above the age of 75 years are not even entitled to take insurance or invest in any savings, with the exception of mutual funds and stocks and shares which mean taking a risk of losing whatever little they have.

WITH retail inflation increasing by the day one of the segments of society that is hit is senior citizens. Their working life is over and they are dependent on their past savings to see them through the autumn and winter of their days on earth. Many salaried classes who, during their working years had seen good days, are now finding it very difficult to make ends meet
For a combination of factors have ensured that their hard-earned savings bring in lesser returns, while inflation depreciates the value of both their income and capital. The current rate of retail inflation is 6%, which means that Rs100 of the last year will enable you to buy only goods worth Rs 94; that is either you buy less or you increase your income to Rs106. For a working person, this may be possible since government and most big companies give a dearness allowance that helps to ensure that there is an increase in your take home salary to keep up with inflation. But retired people have no such cushions.
Most of our middle class retired class have parked their savings in fixed deposits with public sector or credit worthy private banks. While the average savings bank rate is a dismal 3% the average fixed deposit highest rate is 5%. With the retail inflation rate being at 6% and the fixed deposit rate at 5%, the return on your money is a negative 1%.
Thus, an average citizen would be compelled to buy less and more than this finds that over the years his/her savings continue to get depleted. The investment branch of ICICI advertises moving fixed deposits into corporate fixed deposits, where the interest rates range from 6.5% to 8%. These corporate deposits are unsecured and with a tax rate of 10% as deduction, the real rate of interest would be 5 to 6%. Besides for taxpayers in the 30% bracket the real income would be less than 5% . On the contrary your interest from bank fixed deposits is eligible for deduction

ONE of the better modes of assured returns is the Public Provident Fund (PPF). The total amount that can be deposited in a PPF account is Rs1.5 lakh a year. The current rate of interest is 7.10% per year. From the tax point of view the amount of investment in the PPF account qualifies for a deduction under section 80C, up to an amount of Rs1.5 lakh.
PPF accounts are to be maintained for a minimum period of 15 years. Should you wish to continue the account they would have to be renewed for a five-year period each time. Presently, both the principal and the interest are free of tax. For those who wish to keep their money safe this is both a good and safe source of investment.
There exists also in several public sector banks a senior citizen’s saving scheme which would give a retired person interest of 7.40 percent. This scheme was begun for those retiring who received their retirement benefits and looking at where to park their funds. There was an upper limit of Rs15 lakh. Interest was taxable. For those looking at safe investment opportunities there are the Post Office term deposits and National Savings Bonds, with interest rates marginally above most bank term deposit rates. These investments being government backed are relatively safe.
The tax rates for senior citizens are not really oppressive. For those in the 60-to-80 years category, the first Rs5 lakh are exempt, and the tax from Rs5 lakh to Rs10 lakh is 20% of the total income. Above 10 lakh the tax slab is 30% which is common to all categories. Of course, there are several exemptions such as Rs1.50 for investments in insurance and provident funds and investments.
Senior citizens above 75 years are exempt from filing tax returns if they are residents having only pension and interest income from the bank from which they get their pension. Persons over 60 years can claim bank interest without tax deduction if Form 15H is filed. Further, there is an exemption under section 80D up to Rs50,000 toward the premium towards medical insurance.

FOR pensioners there is a standard deduction of Rs50,000. Thus, there are several tax breaks for senior citizens. Generally, returns of senior citizens are not subject to scrutiny except in cases where there is information regarding income that has escaped assessment!
Many of those retired once dabbled in the stock market. Some fell into smart sales personnel from banks and other investment companies who sold these suspecting investors portfolio management schemes. Several were taken up with the talk of rate of interest at 15 to 18%. Many did not read the fine print where the portfolio managers take a hefty commission irrespective of whether they are able to deliver the promised returns.
It’s only after a period of time when you actually check your portfolio, you find that many of your blue-chip stocks have been traded in for unknown companies where the present value is far below the prices that they were bought. It is only then that the salesperson’s pull out the caveat “Subject to market risks” – meaning that there is nothing that they can do about your loss, rather they are covered in what they have done!
However, the reality of rising inflation and the economic downturn, the rising fuel costs and the rise in the cost of daily commodities, has make the twilight of this segment of society one where the darkness of fear and economic hardship makes them see a bleak future – for much of their retirement planning has gone awry!

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