Budget 2011-12 is the last chance for the finance minsiter to undo the damage that the Direct Taxes Code (DTC) is likely to do to the finances of senior citizens, Tragically, not too many people have even noticed how hard it will be for older people to make any tax-saving investment once the DTC kick s off.

The problem is actually far bigger than just the end of the senior citizens tax rebate. Under the DTC, all tax-saving avenues that earning senior citizens use are being shut off. Add to this the long-term damage that higher inflation does to retirement income, and many senior citizens are going to find themselves facing financial hardship as a side-effect of the new tax law.

Here’s what the issues are. The DTC (and incidentally, the New Pension System) assume that income from work ends at retirement age. However, many seniors continue with part-time or full-time work after retirement and many more have rental income. Before the DTC, they would use Section 80C investments like ELSS funds, ULIPs and tax-saving bank deposits. Senior citizens need instruments with shorter lock-ins because they are a little uncertain about how long they will stay healthy enough to work and earn, and these instruments were all suitable. Now, Section 80C is gone.

Now, there’s only the NPS and the Provident Fund, whose tax-protection ends with formal retirement and the PPF, whose 15-year lock-in is way too long for seniors. The net result is that the DTC will force senior citizens to either pay more tax or to lock in their money for 15 years. Neither is a desirable outcome.

Clearly, this is a side-effect of the power-that-be not thinking about how working seniors will save on tax. But that’s easily cured. To see the problem in action, all that the Finance Minister and the Prime Minister have to do is to sit down with their own salary slips and try and figure out their tax-saving investments for next year.