Mr Sharma is 85 years old and does not receive a pension. His primary income is interest earning from savings in bank deposits and his main expenditure is increasingly healthcare costs. He lives in a small rented flat with his wife and they are not covered by any private health insurance. They worry incessantly about bank interest rates, medical expenses, home care costs and personal safety.
Mrs Khan is a 68 year-old retired central government employee who has a considerable pension, is covered by comprehensive medical care under Central Government Health Scheme (CGHS) and lives in her own house with her son. However, she feels increasingly anxious and depressed after losing her husband recently. She is also worried that her children may forcibly push her out of her own property.
In an ageing India, with 110+ million people above the age of 60, many such stories are played out every day. Successive governments have largely ignored the needs of the aged – be it good quality universal healthcare, reasonable state pension for the vulnerable, significant tax breaks for senior citizens or investments in improving senior-friendly infrastructure.
So how does the government take giant steps, starting with Budget 2020, to make this a better, more inclusive, senior-friendly India?
Access to a reasonable State Pension
Protection of Long-term Interest Earnings
Further enhancement of Income Tax exemptions
We hope that beyond these specific wish-lists, Budget 2020 takes a more holistic view of active ageing in India. It needs to initiate efforts that:
Encourage public-private partnerships that deliver basic amenities like shelter, food, medical care and entertainment opportunities to destitute Senior Citizens
Extend cheaper, better home care to millions who do not need to be hospitalised in the first place or keep staying in hospital once admitted
Improve mental health provisions for the elderly including those suffering from dementia, depression and elder abuse
Promote entrepreneurs who use digital technology to improve every aspect of elderly life – be it personal safety, emergency response, medical care, financial inclusion or social engagement
Universal State Pension: A crying need for millions
This Budget needs to push for a reasonable state pension that supports a minimum lifestyle for our Senior Citizens in the long run.
According to the United Nations, by 2050 the 60+ Indian demographic will touch 19% of the total population to reach 323 million Senior Citizens. This creates significant social, economic and healthcare challenges for policy makers. Most of this population will still reside in villages, remain quite poor and continue working in the unorganised sector. How will they survive in old age without a meaningful pension scheme?
To include Unorganised Workers (UW) in the social security net, the government had announced a pension scheme – the ‘Pradhan Mantri Shram-Yogi Maandhan’ – in the Interim Budget of 2019-20. While the scheme has significant flaws, it is meant for old age protection and social security of UWs who are currently engaged as rickshaw pullers, street vendors, domestic workers, agricultural or construction workers and similar other occupations.
Under this scheme, implemented by LIC, UWs till the age of 40 will contribute a stipulated monthly amount for at least 20 years and ultimately receive a Rs 3,000 monthly pension when they turn 60. The government will match that monthly contribution and set aside Rs 500 crores to benefit 10 crore people. There are of course many incredible challenges in implementing this scheme including structural unemployment, limited job security and low savings amongst the UW population. Will they be able to make regular monthly contributions over 20 years with all these constraints?
But more importantly, this scheme is not the same as universal pension – and certainly does not benefit the current Senior Citizens. This scheme will only benefit those who reach the age of 60 after 20 years of regular contribution.
The Indira Gandhi National Old Age Pension Scheme operated by the Centre, is more applicable for Senior Citizens of today. However, the pension amounts, originally decided in 2007, are pitiable and needs urgent review – as noted by the Supreme Court in 2018.The fixed pension under this scheme is currently set at Rs 200 per month for people between 60 and 79 years and Rs 500 per month for those above 80 years of age. Even for those from the BPL (Below the Poverty Line) community, these amounts are a pittance and wholly inadequate in protecting the elderly.
Protecting long term income
The budget should focus on schemes promoting tax-efficient financial products that help lock-in interest rates for the long-term needs of Senior Citizens.
For middle class Senior Citizens, ill-health and inflation are two of the biggest concerns. With age comes one-off medical expenses (e.g. a hip replacement surgery) and chronic spends (e.g. monthly medicines). In real terms, Senior Citizens experience higher inflation than reported headline numbers and need to protect themselves from fluctuations in short term earnings.
Especially for Senior Citizens like Mr Sharma, who do not receive a guaranteed monthly pension, it is important to lock-in long term interest income. However, a paucity of innovative financial products makes it difficult to lock in attractive long-term returns. Other than 10-year Fixed Deposits or some Annuity products– where the post-tax returns are low – there are few options for Senior Citizens to invest for attractive monthly or yearly interest income.
The Pradhan Mantri Vaya Vandana Yojana (PMVVY) launched by LIC in 2017 partly addresses Senior Citizen concerns about falling interest rates. Under the PMVVY programme investments of up to Rs 15 lakhs are invited from Senior Citizens for a term of 10 years with an assured 8% return. However, there is no tax benefit on the amount invested and furthermore the interest income is also fully taxable in the year of receipt.
We urge the government to increase the limit of investment to Rs 25 lakhs or even replace the existing PMVVY with a more tax-efficient offering.
For most Senior Citizens disposable income is a major concern. Therefore, it is not a surprise that most Senior Citizens hope for some tax exemptions, incentives or benefits in every Budget cycle.
Let us first review the current tax regime for Senior Citizens. Under the Income-Tax Act, 1961, there are 2 different categories of Senior Citizens for taxation purposes:
Senior Citizens: Must be of the age of 60 years or above but less than 80 years at any time during the respective year.
This category is granted a higher exemption limit compared to other individual taxpayers. The exemption limit currently for a senior citizen is Rs. 3,00,000 versus Rs 2,50,000 for non-senior citizens. So, senior citizens get an additional benefit of Rs. 50,000 in the form of higher exemption limit compared to normal taxpayers.
Very Senior Citizens: Must be of the age of 80 years or above at any time during the respective year.
A very senior citizen is granted an even higher exemption limit compared to others. The exemption limit currently for this category is Rs. 5,00,000 – which is Rs 2,50,000 higher than the normal taxpayer.
We feel that given exorbitant medical expenses and high health insurance premiums at old age, middle class Senior Citizens still need significant tax relief.
The government should set a higher exemption limit (currently Rs 50,000) on interest earning from deposits at banks or post office under Section 80TTB – a provision introduced specifically for Senior Citizens w.e.f. 1st April 2018.For many retirees, interest earning is often their only source of income and we request the finance minister to set the exemption higher at Rs 150,000 – or at least do so in a stepped manner over 3 years. The exemption should cover all fixed income products including bank FDs, savings account, Non-Convertible Debentures, Senior Citizen Savings Scheme
Increase the exempted amount (currently Rs 50,000) for health insurance premium and medical expenses. Under Section 80D, Senior Citizens get additional tax deductions since Budget 2018. However, anyone with elderly loved ones will vouch that health expenses can be punitive with age and we propose the exemption limit be increased further to Rs 75,000.
Increase the tax exemption limit for both Senior Citizen and Very Senior Citizen categories by at least Rs 3,00,000. This makes an immediate and direct impact on disposable income for Senior Citizens as they are much more exposed to inflation than the general population. It is estimated that healthcare inflation is running at 13%-15% in India today and affecting the elderly disproportionately.
Retirement should be a time for us all to enjoy the fruits of toil and hard work with family and friends. Unfortunately for millions of Indians, retirement is often a nightmare of managing ever-increasing bills and ever-shrinking earnings.
We need a better India that provides basic amenities and dignity to our elderly – for a society is best judged by how we treat the aged.
Budget 2020 has an enormous opportunity in delivering that dream for our often-forgotten Senior Citizens.
Article By Tamojit Dutta and Prateep Sen are Co-CEO of TriBeCa Care, one of India’s largest specialist elder care platforms