Written by : Knowledge Centre Team
2026-02-15
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7 minutes read
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Your professional life goes on with many ups and downs. At the end of your working life, you wish to relax and expect utmost financial security. You might be spending hours thinking about how to save for retirement. But the question arises of “Whether your financial worries come to an end with your aggregate savings?” Certainly not.
There is a major aspect that eats up a huge chunk of your savings, which is tax. It feels disappointing when various taxes narrow down your hard-earned savings for retirement. Hence, you must work on tax-efficient financial planning so as to enjoy complete financial freedom after your retirement.
Key Takeaways
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Three Taxes After Retirement, You Must Plan For
Your tax scenario may change a little after you retire, as your many long-term investments mature, and your investment preferences change. Apart from the regular pension, the following incomes may form a part of your taxable income:
Rental income from house property.
Income from the sale of assets, i.e., capital gains.
Tax on other incomes.
- Tax on Income from House Property: Rental income can form a major part of your post-retirement income. For tax purposes, this income is classified as income from house property.
Rental income from house property increases your gross taxable income. The income tax will be charged as per the income tax slab.
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- Tax on Capital Gains: Capital gains shall be taxable in the following cases:
- The asset transferred is a capital asset.
- If you have transferred it during the previous year.
- If you’ve gained certain profits or gains from the capital transfer.
Capital gains will be assessed based on the holding period of the asset and classified as long-term or short-term capital gains.
Here’s how these capital gains will be identified for taxation:
Type of investment | Long-term Asset | Tax Treatment on Capital Gains | Short-term Asset | Tax Treatment on Capital Gains |
Equity funds (Listed); Equity-oriented hybrid funds | More than 12 months | Taxable @ 12.5%, if more than ₹1.25 lakh | Less than 12 months | Taxable @ 20% |
Equity funds (unlisted) | More than 24 months | Taxable @ 12.5% after indexation; 10% before indexation. | Less than 24 months | Taxable @ 15% |
Debt funds and debt-oriented balanced funds | More than 24 months | Taxable @ 20% after indexation | Less than 36 months | Taxable @ 15% |
- Tax on Other Incomes: Dividends and interest form a major part of your post-retirement income. Income from these interest-bearing securities will be taxable as given below:
- If you have invested in equity shares, the dividends you earn would be taxable at 10%.
- The TDS on dividends paid by a company or mutual fund is charged at 10% if the amount exceeds ₹10,000 in a financial year. Until FY 2024–25, this threshold was ₹5,000.
- However, make sure you submit your PAN details to the payor. If you have not provided your PAN, the payor must deduct tax at source (TDS) at a rate of 20%.
What is Indexation?
Indexation is a benefit based on the inflation rate in the country. Indexation allows a rebate on the capital gain for the inflation cost. Thus, indexation reduces your taxable capital gain amount.
When is Indexation Not Available?
The benefit of indexation is only available for LTCG. However, it is not available in the following cases:
Non-resident or foreign companies: LTCGs from the transfer of unlisted securities.
Gains from transfer of listed Equity securities: LTCGs of more than ₹1 lakh from Equity shares or equity-oriented funds.
How Does Indexation on LTCG Work?
Indexation adjusts the purchasing price of an investment in such a way that it reflects the impact of inflation on it. The higher the purchasing price of an investment, the lower the gains will be on it. Hence, lower will be the tax on it.
The inflation rate used for indexation can be obtained from the Cost Inflation Index (CII) table published by CBDT every year.
Here's the formula for calculating Indexed Cost of Acquisition (ICoA):
ICoA = Actual Cost of Acquisition x (CII of the year of sale / CII of the year of purchase)
For example, you had invested ₹10,000 in an equity fund in August 2019, at the NAV of ₹ 10. You redeem your investment in FY 2021-22 at NAV of ₹20/-, i.e., the value of the investment is ₹20,000.
(The CII for FY 2021-22 is 317, and for FY 2019-20 is 289)
Now, ICoA = 10,000 X [317/ 289] = 10,969
Hence, after indexation, your capital gains shall be 9031 (20000-10969). 20% Tax shall be charged on this amount.
The tax rate for short-term capital gains from the transfer of Equity Shares, Equity Oriented Funds shall be taxed at 15% u/s 111A of the Act.
How to Lower Your Taxes after Retirement?
You have worked hard to increase your savings for retirement, but that’s not enough. Once you retire and look at your savings corpus, you might feel satisfied that you have enough money for a happy life ahead. But wait, there is a huge percentage of taxes charged on it. A regular tax-free income is what you need the most after your retirement.
There are two ways you can reduce the burden of taxes on your retirement income:
- Minimise Your Taxable Income: If you don’t want the government to get a huge portion of your savings as tax, it’s time for you to plan your finances in a tax-efficient manner. A little bit of tax planning will minimise your taxable income and will help you maintain a handsome amount of savings for retirement.
Under the current provisions, the minimum taxable income is ₹2.5 lakh. Although your tax liability can be zero for taxable income up to ₹5 lakh as you can avail of a rebate under section 87A of the Income Tax Act.
Thus, you can have a taxable income of up to ₹5 lakhs in a year as per current provisions. - Maximise your Non-taxable Income: The next important thing is to maximise your non-taxable income. You can do so by investing your savings into long-term investments, on which you can claim a tax deduction.
How to Maximise Non-taxable Income?
You can easily increase your tax-free income by investing your savings into tax-saving retirement plans. Here are two such tax-saving plans by Canara HSBC Life Insurance:
- iSelect Guaranteed Future Plus: The iSelect Guaranteed Future Plus by Canara HSBC Life Insurance is a savings and investment plan designed for those who seek certainty in their financial goals. This plan offers guaranteed benefits at maturity, making it ideal for individuals who want to secure milestones like children’s education, marriage, or even early retirement.
With flexible policy terms and premium payment options, you can customise the plan based on your financial comfort. The plan also provides life cover for the entire policy term, ensuring your loved ones remain financially secure in your absence. One of the key advantages is that it offers guaranteed income, helping you plan better without worrying about market fluctuations.
Whether your goals are short-term or long-term, this plan gives you the confidence to move forward with a clear financial roadmap. The added tax benefits on premiums and payouts make it a practical tool for both savings and protection. - Young Term Plan: The Young Term Plan by Canara HSBC Life Insurance is designed to support young individuals in building a secure future for their families. This term insurance plan offers affordable premiums while providing comprehensive life cover. It ensures your family stays protected from financial uncertainties in times of misfortune.
What sets it apart is the option to increase the life cover at important life stages like marriage or parenthood. It also allows you to add benefits such as accidental death cover and terminal illness protection. For young earners, this plan becomes a smart financial step that combines security with flexibility.
The premiums are pocket-friendly and remain fixed for the entire policy term. You can also opt for regular or limited premium payment modes depending on your preference. With the added advantage of tax savings on the premiums paid, the Young Term Plan becomes a dependable option for those beginning their financial journey early in life.
Conclusion
Planning for retirement is not just about building a savings corpus. It is also about managing how much of that money stays with you after taxes. Many people overlook the tax aspect of retirement, which can reduce the effectiveness of their entire financial planning. Understanding the taxes applicable to rental income, capital gains, dividends, and interest can help you make smarter investment decisions. Using benefits like indexation and investing in tax-efficient plans can significantly reduce your tax burden. By making small adjustments and choosing the right insurance-backed investment plans, you can ensure long-term financial freedom.
Plans like iSelect Guaranteed Future Plus and Young Term Plan by Canara HSBC Life Insurance help you build a strong and tax-efficient retirement strategy. Whether you are still working or already retired, taking proactive steps today will ensure a peaceful and financially stable tomorrow.
Choose a smart path to retirement with us and secure a worry-free future for yourself and your loved ones.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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