Investment opportunities await senior citizens in India

Investment opportunities await senior citizens in India
Investment opportunities await senior citizens in India

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Aden - Yasmine El Tohamy - Special benefit given to persons who are 55 years or more and who opt for voluntary retirement scheme

Q: I am planning to retire soon and join my wife in India. She has crossed the age of 55 and opted for voluntary retirement. I want to know the best form of investment which would provide highest return. Is there a flexible pension scheme which can be availed of by my wife and I?

A: With interest rates on bank deposits dropping in India, the Senior Citizens' Savings Scheme stands out in terms of providing superior returns. Further, it has a low risk quotient as it has a sovereign guarantee. If you are 60 years or more, you can invest your funds in India when you return in this scheme which offers a rate of interest of 8.6 per cen per annum payable at quarterly intervals. The scheme comes with a standard five-year maturity period. However, the maximum amount that can be invested in this scheme is limited to ?1.5 million. Your wife, who is 55 years, would be eligible to invest the compensation received by her on voluntary retirement in the Senior Citizens' Savings Scheme.

A special benefit is given to persons who are 55 years or more and who opt for the voluntary retirement scheme. The condition for availing of this benefit is that the account must be opened within one month of receipt of the retirement benefit. Under a government-run pension scheme operated by Life Insurance Corporation of India, the investor has the option to choose the frequency of pension payments. The effective interest rate for monthly pension is 8 per cent, for quarterly pension 8.05 per cent, half-yearly pension 8.13 per cent and annual pension 8.3 per cent. Funds can be invested in this pension scheme to the extent of ?1.5 million over and above the investment of ?1.5 million in the Senior Citizens' Savings Scheme. The pension as well as interest will be taxable under the head 'income from other sources' in every financial year at the prevailing income-tax rates.

Q: I had sold a residential property last year. In order to avail of capital gains tax exemption, I invested the profits in another residential house that is under construction. The builder had agreed to give me possession of the new house by the end of this calendar year. However, he now informs me that his project will be delayed by at least one year. Please advise what action I should take against the builder to compensate me for the loss suffered as a result of the delay.

A: You have three options. One is to file a complaint at the Real Estate Regulatory Authority (Rera). The other option is to file a complaint in a consumer court and the third option is to make an application to the National Company Law Tribunal against the builder's company. Generally, it is found to be more efficacious where an application is made to the Rera. This authority has sufficient powers to direct the builder to complete the project within the scheduled time as mentioned in the agreement. If this cannot be done by the real estate company, suitable compensation would be awarded to you and the other flat owners who have applied to the authority.

However, the more difficult problem that you may face pertains to your losing the capital gains tax exemption under Section 54 if the property is not completed and occupation certificate obtained within two years from the date of your selling the old property. Section 54 requires this condition to be fulfilled in order to exempt the capital gains made when you sold your old residential house. Therefore, you may have to pay tax on the taxable profits made on sale of the old house as exemption would be denied. To work out the taxable profits, you will have the benefit of substituting the original cost of the old house with the fair market value of the house as on April 1, 2001, and indexing such value by the fraction 289/100.

The writer is a practicing lawyer, specialising in tax and exchange management laws of India.

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