Unlocking financial security
In a significant move, the Union Cabinet recently approved a major expansion of the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY). Now, all senior citizens aged 70 and above will receive health coverage, regardless of their income. This expansion is set to benefit innumerable families, including 6 crore senior citizens, by providing them with free health insurance coverage of up to Rs 5 lakh per family.
Senior citizens enjoy several other benefits across various domains, including health insurance, pension schemes and tax relief. Here’s an overview of the key benefits available to elders:
Ayushman Bharat PM-JAY
Launched in September 2018, AB PM-JAY is India’s largest government-funded healthcare scheme, aimed at providing accessible and affordable healthcare to vulnerable sections of society. The scheme offers financial coverage of up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation, covering over 1,500 medical procedures. This includes treatment for serious ailments such as cancer and heart diseases, and surgeries that are particularly relevant for senior citizens.
Eligibility: With the recent expansion, every senior citizen aged 70 and above can avail himself or herself of the scheme’s benefits without any income restrictions.
Distinct identification card: Eligible seniors will receive a unique card, simplifying the identification process when accessing medical services.
Top-up coverage: Seniors in families already covered under AB PM-JAY will receive an additional top-up coverage of Rs 5 lakh per year, ensuring they have ample financial support for their healthcare needs without having to share this amount with younger family members.
Non-covered seniors: Senior citizens who are not part of an existing AB PM-JAY family will also receive a coverage of Rs 5 lakh per year on a family basis.
Flexibility in choice: Seniors enrolled in other public health insurance schemes (like CGHS or ECHS) have the flexibility to either continue with their current plan or switch to AB PM-JAY.
Eligibility with private insurance: Even seniors with private health insurance or those covered under the ESIC can benefit from AB PM-JAY.
Cashless treatment: The scheme facilitates cashless hospitalisation at both public and empanelled private hospitals across India.
No age restrictions: Unlike many health insurance schemes, AB PM-JAY does not impose upper age limits. This inclusivity means that senior citizens can access essential medical services without being denied coverage due to pre-existing conditions or other health issues.
Nationwide reach: With a vast network of empanelled hospitals, AB PM-JAY ensures that seniors, especially those living in rural or semi-urban areas with limited healthcare infrastructure, can access quality medical services.
Preventive health focus: In addition to curative treatment, the scheme promotes preventive health check-ups and screenings, which are essential for seniors to monitor vital health indicators. Early detection of health issues can lead to timely interventions, reducing the risk of severe complications.
National Pension System (NPS)
The National Pension System encourages retirement savings, allowing senior citizens to contribute until the age of 70. Upon maturity, a portion of the corpus can be withdrawn as lumpsum, while the rest can be used to purchase an annuity, providing regular pension payments.
Tax benefits on NPS: Under Section 80CCD(1B), an additional deduction of Rs 50,000 is allowed for contributions to NPS, over and above the Rs 1.5 lakh limit under Section 80C.
Higher exemption limits: The basic exemption limit for those aged 60-80 years is Rs 3 lakh, while those over 80 enjoy a limit of Rs 5 lakh.
Section 80TTB deduction: Seniors can claim deductions of up to Rs 50,000 on interest income from savings accounts and fixed deposits, significantly higher than the Rs 10,000 limit applicable to other taxpayers.
Deduction u/s 80D: Under Section 80D of the Income Tax Act, senior citizens can claim a deduction of up to Rs 50,000 for health insurance premiums. An additional Rs 50,000 deduction is available if premiums are paid for senior citizen parents.
Rebate on medical expenses: If a senior citizen is unable to secure health insurance due to health issues, they can claim a deduction of up to Rs 50,000 for medical expenses incurred under Section 80D.
Pawan Taneja, CEO, K-Secure, a Chandigarh-based financial consultancy, says, “As medical treatment and hospitalisation can be expensive after retirement, having a health insurance reduces the financial burden, ensuring access to quality healthcare without affecting our hard-earned life savings.”
No advance tax: Seniors without business income are exempt from paying advance tax, allowing them to settle their tax liabilities at the time of filing returns.
Savings, investment schemes
Senior Citizens’ Savings Scheme: It offers a safe investment avenue with an interest rate of approximately 7-8 per cent per annum, with a maximum deposit limit of Rs 15 lakh.
Pradhan Mantri Vaya Vandana Yojana: This pension scheme provides assured returns of 7.4 per cent per annum for a 10-year investment, offering regular pension based on the investment.
Post Office Monthly Income Scheme: This scheme provides a steady income stream through monthly interest payouts, making it an attractive option for seniors.
Systematic Withdrawal Plan or SWP
SWP (or we may call it the new generation’s pension) means taking out a portion of your corpus (savings) periodically for your recurring monthly expenses when you don’t have a regular pension.
‘Savings’ here can be in any form, such as FDs, PPF, mutual funds. But, typically, the term ‘SWP’ is used in context of the mutual funds portfolio.
How does SWP work
Let’s say you are planning to retire five years down the line, and post inflation, your lifestyle expenses amount to Rs 50,000 per month. So, to get Rs 50,000 per month, how much corpus should one have after five years?
Saksham Diwan, assistant vice-president, wealth management, Anand Rathi, explains: “If you have built your portfolio through systematic investment plans (SIPs) and mutual funds, the average portfolio return is around 12-14 per cent per annum, assuming your portfolio is at least three years or more in the market and a major portion (at least 75 per cent) is into equities. But, is it safe to say that since the portfolio is growing at the rate of 12 per cent per annum, one can take out 10 per cent of corpus every year?”
The answer to that, he says, is “no” because market returns are not linear. “This means that the market is not giving 12 per cent every year; but on an average of three-five years, the average of all the years comes out in the range of 12-14 per cent.”
As a thumb rule and to cover for any unexpected events, Diwan says, a person can take out a minimum of 4-6 per cent of corpus every year and then also the portfolio would be growing at a minimum 6-8 per cent per annum.
Coming back to the question, if one wants to withdraw Rs 50,000 per month, what should be the minimum corpus size? Diwan says assuming the withdrawal rate at 6 per cent, the minimum corpus should be Rs 1 crore. This means, anyone having a corpus of Rs 1 crore or more can take out Rs 50,000 monthly and still his corpus would be growing at 6-8 per cent per annum.
Taxation in SWP
Taking funds out in the form of SWP is taxed in a similar manner as redeeming long-term capital gains, i.e. 12.5 per cent on the gains (assuming all redeemed units have a holding period of more than a year).
With the expanded AB PM-JAY scheme and various financial strategies available, senior citizens can secure their health and financial future. By understanding these benefits and making informed choices, seniors can navigate their golden years with confidence and peace of mind.
