Having played their first innings well, senior citizens deserve a relaxing second innings.

However, given the contemporary trends of nuclear families and financial insecurities, senior citizens instead undergo a lot of hardships.

At this stage in life, their only aspiration is to have financial security, a steady stream of cash flow, and funds to meet their medical exigencies.

Towards this end, the Indian government has made efforts to put a smile on senior citizens' face, by introducing some tax benefits especially for them. Under the Indian Income-tax law, a senior citizen would be an individual resident in India, who has attained 65 years of age any time during the relevant financial year.

Financial security

To ensure financial security, a higher basic exemption limit has been prescribed for senior citizens under the Income Tax Act. Further, the Budget 2008 has proposed to increase the limit to Rs 225,000 from the existing Rs 195,000. Therefore, a senior citizen would not be required to pay any income taxes for total income up to Rs 225,000. Budget 2008 has also proposed to include the Senior Citizens Savings Scheme, 2004 ('SCSS') deposits u/s 80C eligible tax savings instruments.

Steady stream of cash flow

Besides, the SCSS deposits offer a higher return of 9% per annum to senior citizens, with quarterly interest payouts, thereby providing them with a steady stream of cash flow. Early exit options in the scheme address the liquidity concerns. Hence, senior citizens have the option to encash their deposits before maturity, subject to the prescribed conditions.

The returns from the scheme are taxable. However, there would be no withholding tax on interest income upto Rs 10,000 per annum. Besides, senior citizens have the option of filing Form 15H with the deductor, for non deduction of withholding tax on interest income, if his/her estimated tax liability for the relevant financial year is 'Nil'.

Additionally, to meet the financial needs and maintain their lifestyle, a tax-free source of cash flow under the scheme of reverse mortgage has been introduced by the Budget 2007.

In the scheme, a residential property owned by a senior citizen, is pledged with the 'lender' - a scheduled bank, which in turn would make periodic payments (loan) to the borrower for a fixed tenure.

The lender recovers the loan with applicable interest by selling the property only after the demise of the borrower and his spouse whichever is later, after giving an option to the legal heirs to repay the loan and claim the property.

Under this scheme, the owner retains ownership of his house and continues to live in the same throughout his lifetime. Besides, he also receives a regular income stream, to augment his existing earnings.

Further, Budget 2008 has clarified that a reverse mortgage shall not be regarded as a transfer and therefore, will not attract capital gains tax in the hands of transferor. Besides, the cash flows from the bank to the borrower would also be exempt from income-tax.

Medical exigencies

Budget 2008 has proposed to allow an additional deduction upto Rs 15,000 u/s 80D for payments made by an individual, to effect or keep in force medical insurance on the health of his parent/s. Further, the deduction would be allowed up to Rs 20,000, if either of the parents is a senior citizen.

Further, an additional deduction of Rs 60,000 is extended under section 80DDB in respect of expenses incurred on medical treatment of senior citizens.

The above provisions aim to encourage individuals to supplement the financial needs of their parents by paying for their medical insurance.

—PWC