Saturday 22 June 2024
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Protect Your Retirement Corpus from Taxation

Protect Your Retirement Corpus from Taxation

Retirement is that golden period where an individual can finally say goodbye to all his work-related responsibilities and move towards a more relaxed phase of his/her life. People plan to do a lot of things during their retirement, such as- spend time with their families, travel to places where earlier they had no time to visit or fulfill any other long-cherished dream. However, fulfilling all these dreams with just your accumulated provident fund savings or pension plan would not be enough. In fact, there is a misconception among people that retirement means the end of the tax trouble. However, that is not the case. In case you have any other source of income such as house rents, capital gains, insurance maturity amounts and interest and dividends earned from fixed deposits and savings, all of them can qualify for tax deductions. In fact, even your retirement pension and other savings can be taxable after retirement. With no steady source of monthly income, it becomes essential to find ways to protect your retirement corpus. Below discussed are some saving and investment plans that can help avail tax benefits on your retirement-

  • Unit-Linked Pension Plans

Unit-linked Pension plans are market-linked pension plans offered by life insurance providers. They are suitable for policyholders looking for a long-term retirement plan that doubles up as an investment. ULIPs are different from traditional ULIPs in terms of investments. While ULIPs invest in equity markets and other investments, traditional pension plans invest mainly in secure options such as bond and government securities (gsecs or gilts) markets. Premiums paid towards ULIPs are eligible for tax exemption under Section 80C up to a maximum of Rs 1, 50,000 annually.

  • Public Provident Fund

Public Provident Fund (PPF) is a government saving scheme that allows you to invest a maximum of INR 1,50,000 every year and earn compound interest on your savings. The interest earned on a PPF is applicable for tax deductions under Section 80 C of the Income Tax Act. PPF scheme is a 15-yearlong scheme. Hence, it is ideal for people who have taken early retirement through VRS. After a lock-in period of 7 years, you can even make partial withdrawals from the PPF.

  • National Saving Certificate (NSC)

National Saving Certificate is another government saving scheme that offers tax saving avenues. Under the NSC, you can direct your funds in a savings bond with a lock-in period of 5-10 years. The investments earned on an NSC earn fixed interest on them at 8% per annum.

While there is no limit on the amount that you can invest in an NSC, the tax benefits can be availed up to INR 1,50,000 only. Hence, as a retiree, you can direct some of your savings to this scheme and enjoy tax rebates.

  • Senior Citizen Saving Schemes

As is clear from their name, the senior citizen saving schemes are specifically designed to cater to the financial needs of senior citizens and retired people. These schemes offer a large investment cap of up to INR 15 lakhs for a tenure of 5 years. The deposits made under SSC schemes are eligible for tax deductions under Section 80C. The scheme also allows a facility to make partial withdrawals after the completion of one year on your investment, albeit after deductions of 1.5% of the deposit as partial withdrawal charges.

  • Fixed Deposits

Perhaps, the most straightforward way to safeguard your retirement investments from tax implications is to invest them in long-term fixed deposits (FDs). The tenure of these FDs is fixed during which you cannot break the deposit. However, in case of any urgent financial crutch, you can always avail a loan against your FD. This facility is especially beneficial for retired people, as otherwise getting a loan after retirement with no steady source of monthly income is a huge effort.

Apart from the above-mentioned saving and investment schemes, there are several other financial tools which you can use to save your retirement corpus from tax implications. While a pensioner can enjoy some amazing retirement benefits from these tax-saving plans post-retirement, it is always advisable that one does not wait until the last minute of retirement to start this financial planning. It is always better to start your retirement planning while you are still working and earning a monthly source of income.