How Senior Citizens Can Multiply Tax-Free Gratuity Amount

Senior citizens need to be on the lookout for investment options with high-interest paying capacity and lowest or no taxes. Safety of capital is the most important aspect. Most senior citizens would look at bank FDs for the sake of their safety to park their hard-earned money safely. Few of the senior retirees with a higher capacity to bear risk look at mutual funds.  Direct equity is quite risky to put in your money in unless you are a savvy investor already. Yet, knowing how much tax you will pay in these investments is a must. Also, it will serve you well to learn about the taxation of gratuity and how it can be saved.

Knowing the Gratuity Amount

You can use online gratuity calculators or a manual gratuity calculation formula to know the exact gratuity amount you would be receiving on retirement. If you know the basic component of your salary along with dearness allowance and incentives, you can apply the following formula to know the gratuity receivable –

Gratuity = Previous salary before leaving x (15/26) x Total No. of years worked

Most likely, your company will be using this formula unless you are in an organization which is not mandated by law to pay gratuity. In case your organization is not mandated to pay gratuity, but it is still paying you, then the calculation in the above formula will use 30 days instead of 26 days in a month. This is the rule as per Gratuity Payment Act, 1972.

Saving Tax on Gratuity

The entire amount of the gratuity is not tax-free. Only the lowest amount from the following three calculations is tax-free gratuity –

1. If you have a pre-decided gratuity amount in your salary package, then it needs to be compared to the gratuity you would receive per the formula as discussed earlier.
2. If your gratuity amount exceeds Rs. 20 lakhs, then you will receive only Rs. 20 lakhs as tax-free as this is maximum ceiling mandated by the government.
3. If the amount of gratuity calculated as per the formula is the least, then only this portion of your total gratuity amount will be tax-free. The rest of the amount of gratuity will be clubbed under your taxable income.

Investment options for tax-free gratuity amount

As you can see, there are no other senior citizen benefits to employees who are retiring in terms of saving taxes. You can look at high yielding instruments such as Senior Citizen Saving Scheme (SCSS) which gives tax benefit of up to Rs. 1.5 lakh per financial year under Section 80C. Since there are not many tax saving options, look to increase your yield. 

If you are unsure where to invest, just park it in a high yielding fixed deposit. Apart from bank fixed deposits you can look at high yielding company fixed deposits like Bajaj Finance FD which pay much higher than bank fixed deposits. Certain company FDs like the one from Bajaj Finance are also accredited for their safety and stability. Bajaj Finance FD has ICRA’s MAAA /stable rating and CRISIL’s FAAA/Stable rating. It means that your funds are safe and secure.

It is also a high-interest rate yielding interment giving 1-2% higher rates than bank FDs. It has rates for cumulative FDs starting from 8.6% and going to 8.95% for senior citizens.

The table below illustrates the return on investment on a sum of Rs. 5 lakhs for 5-year tenor.

Investor Type	Interest rate	Principal Amount	Tenor	Return	ROI
New customer	8.6%	₹5 lakh	5 years	₹2,55,299	51%
Senior citizens	8.95%	₹5 lakh	5 years	₹2,67,549	54%
Existing customers	8.85%	₹5 lakh	5 years	₹2,64,033	53%

As a senior citizen, you can operate your FD account online and make use of other features like below –

1. Auto-renewal – You can easily make and choose the auto function to avoid hassles
2. Loan against FD – This allows you immediate liquidity for 75% of your loan amount
3. Multi deposit– You can open multiple FDs with a single deposit amount.

Many more such features with reliability and safety have made Bajaj Finance FD a Smart investment option for gratuity amount.