Budget 2021: Retirees pin hopes on FM Nirmala Sitharaman

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Millions of retired people will be glued to their TV sets on February 1 hoping that Finance Minister Nirmala Sitharaman would come up with some measures to ease the financial challenges faced by them in the era of receding interest rates.

In past budgets, the Narendra Modi government has intervened on behalf of senior citizens. It extended tax benefits on bank deposits from Rs 10,000 to Rs 50,000 and TDS is no more deducted up to this amount.

There has been an increase in medical insurance deduction under Section 80D. The Pradhan Mantri Vaya Vandana Yojana (PMVVY) pension scheme, meant for senior citizens, has now been extended till March 31, 2023. It has proved to be a good debt instrument for retired people.

But these sops are not enough to ease the pain suffered due to erosion in interest rates on savings. Many senior citizens find their retirement plans corroded as interest rates on FDs, Public Provident Funds (PPFs) and other debt investments like postal savings have come down drastically, leaving a wafer-thin margin above the prevailing inflation levels.

Those who have retired after 2014 have seen the interest income on their FDs shrink nearly 40%, making it difficult to live on the interest income from savings.

One year FD rates were 9% in 2013-14 and it now stands at around 5.5% for most people and 6-6.5% for senior citizens. The trend of falling rates is expected to continue.

Expectations

There are strong hopes that tax benefit on interest income should be raised from the present limit of Rs 50,000 to Rs 1 lakh. Also, the expectation that the medical claim limit should be extended.

Investors in debt mutual funds are hoping that the Long Term Capital Gains (LTCG) tax, which is lower than the normal tax rate, be made available for debt funds after one year instead of the prescribed time of three years. LTCG tax is 20% and is applicable for income above Rs 1 lakh on different funds.

In a sense, the government is discouraging debt mutual funds compared to the more volatile equity funds, which attract LTCG for investments of just one year.

“For equity or equity mutual funds, the holding period required for eligibility for long term capital gains tax is 1 year. For bond mutual fund schemes, the corresponding holding period required is three years. There is an anomaly here. Apart from taxation as such, the government is giving a message that holds equity for 1 year and debt for three years. It should be the other way around. Equity is more volatile,” Joydeep Sen, author and consultant with PhillipCapital fixed income desk, told this writer.

Many retirees who have purchased equity shares depend on dividend yield income instead of indulging in active buying and selling of stock. They would like to see tax exemption on dividend income up to Rs 2 lakh.

Since the government wants to fight the pandemic and develop infrastructure, some investors are demanding tax deduction for investment in bonds focused on these areas.

A large section of retirees put their money in Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office Monthly Income Scheme (POMIS), Senior Citizen Saving Scheme ( SCSS), Immediate Annuity plans of life insurance companies and Floating Rate Savings Bonds 2020. The interest income from these investments is taxable in the hands of the investor in the year of receipt. There is a strong need to exempt tax on the maturity of their schemes for people above the age of 60.

(The writer is a senior journalist. Views expressed are personal)