On 1st Feb 2023, our Hon`ble FM Mrs. Nirmala Seetharaman presented the Union Finance Budget for the upcoming FY 2023-24. This budget, when passed by the Parliament will become the Finance Bill 2023-24 applicable for the period 1.4.2023 to 31.3.2024. For the sake of brevity, this shall be henceforth referred to as “Budget 2023” in this article.

The budget is wide-ranging in scope and influence. This article is limited to the aspect of “Impact of Budget 2023 on Retirees”. The focus here will be only on the changes in tax liability due to the Budget 2023 for senior citizens. 

From the retirees’ perspective, the Budget 2023 has 2 main focal points. 

A) The attractiveness of 2 important financial investments – SCSS and POMIS has increased. These savings options are popular with senior citizens, particularly retirees.

B) Additional tax benefit under the new income tax regime by way of Standard Deduction.

These 2 main points are detailed below:

Change pertaining to SCSS: Senior Citizen Savings Scheme

• • The maximum investment limit has been doubled from the existing Rs 15 lacs to Rs 30 lacs per person.

• • The interest is paid every quarter.

• • From 1.1.2023 onwards the assured rate of interest offered in this scheme is 8 per cent per annum.                                                                             

The following table explains the monetary impact of this decision for the retirees (senior citizens) on a per-person basis: –

Change pertaining to POMIS: Post Office Monthly Income Scheme

• • The maximum investment limit has been increased from Rs. 4.5 lacs to Rs 9 lacs per person and Rs 15 lacs on a joint basis.

• • The interest is paid on a per-month basis.

• • From 1.1.2023 onwards the assured rate of interest offered in this scheme is 7.10 per cent per annum.

The following table explains the monetary impact of this decision for the retirees on a per-person basis: –

It is evident from the above two tables that considering both these schemes together, the Budget 2023 has offered an extra interest earning potential to the tune of (1,20,000+31,950) i.e., Rs.1,51,950 on an ANNUAL BASIS for each retiree. This translates to roughly Rs.12,663 extra monthly safe interest earnings for retirees.

Since both the SCSS and the POMIS are backed by a sovereign guarantee i.e., Govt guaranteed, there is Zero Risk involved. The increased investment limit for the SCSS and POMIS will work in favour of retirees looking for extra returns on their retirement kitty.

Investment potential at a glance:

• • Each retiree can make a total investment of Rs. 39 lacs at zero risk and guaranteed high interest.

• • Investing in both SCSS and POMIS ensures an earning of Rs 3.03 per annum or Rs 25000 per month per person.

• • A retired husband and wife can earn Rs. 6.06 lacs per annum or Rs 50000 per month by investing separately.

Advantage to PENSIONERS

Pensioners will benefit from Budget 2023, with a new standard deduction and resulting tax savings.

Benefits to retirees under New Income Tax Regime

• • Budget 2023 has enhanced the rebate under Sec.87A from the current Rs.5,00,000 to Rs.7,00,000 under the new income tax regime.

• • Considering the newly added advantage of Rs.50,000 for the standard deduction, the retirees whose Annual Income from all sources (pension, interest earnings etc) together does not exceed Rs.7,50,000 per annum, will now come under the SPECIAL TAX-FREE ZONE                                        

No extension of the PMVVY Scheme:

Senior citizens had been expecting an enhancement of the maximum investment limit under the Pradhan Mantri Vaya Vandana Yojana (PMVVY) where guaranteed interest in the form of pension @7.40% p.a. is paid by Life Insurance Corporation of India. But this hike did not happen in Budget 2023.  The existing PMVVY scheme is valid only up to 31.3.2023 and it was widely expected that it would be extended in the Budget 2023. However, there is no indication of extending this scheme beyond 31.3.2023 and so the same would stand lapsed w.e.f. 1.4.2023.

Budget 2023 affords retirees an opportunity to make effective decisions in their investment journeys. They now have options for assured return on investments in a risk-free environment.

This blog post has been written by guest author Mr. Sanjay Natekar and reflect his views.