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Key Takeaways
Pension and interest income after retirement are still taxable.
Tax-saving investments must match your liquidity and financial needs.
Annuity schemes and ULIPs can offer income and tax benefits.
Senior citizens enjoy relaxed tax slab rates and added deductions.
Planning ahead ensures a smooth, financially secure retirement.
Taxes are an essential instrument for the functioning of the state. They are collected by the government of India for use in development projects in the country and for providing defense and healthcare services. The taxpayers of the country comprise of individuals, firms as well as institutions that earn and spend money.
Any person earning an income above a basic exemption limit prescribed by the government is liable to file an Income tax return. But regardless of the tax liability, one has to file tax returns for any particular fiscal year in which your earnings exceed the prescribed limit. However, there are various options to reduce your Income-tax liability through tax saving plans.
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Tax Liabilities for a Retired Person
After retirement, most of us often stop earning a regular income, but any other form of income, including pension and interest from fixed deposits, bonds and capital gains, are still taxable. This means that while the income officially stops, one does not stop paying taxes even after retirement. Here are certain aspects to consider:
Considering this is a life stage where one's risk appetite will be typically low and their focus would be on ways to streamline their income for a peaceful life. Experts recommend avoiding non-liquid instruments for investment at this stage, and prioritise suitability of the product. Investing in a product with a long lock-in period just to save tax could be challenging.
Also, if you have your children settled with no financial dependency on you by now, a pure life cover plan may hold less importance for you. So, you might instead focus on investing in a guaranteed return plan and health insurance products to help you steer through your retirement years.
While fixed deposits and Senior Citizen Savings Schemes may seem like the safest investment options, you must not make the mistake of avoiding equity all together. Though the first two can save you tax under the 80C basket, investing about 15-25% of your total portfolio in equity can help fill in any gaps and invest in products that are in line with your financial needs and fit your portfolio.
More than 93% of income tax returns were filed online in FY 2023–24 using e filing 2.0.
Source: The Economic Times.
An Ideal retirement portfolio
For the purpose of retirement, you want your investment returns to provide you with a regular income or an accumulated lump sum post-retirement. While most investments may offer only one of these benefit payouts, there are some that can give you the best of both.
It depends on your situation, if you are a pensioner with a regular income coming in, you might not need to focus on the first benefit and you can consider directing your funds towards an instrument that helps you accumulate wealth over time.
However, in case of individuals who were salaried or self-employed before their retirement, and may not receive a pension, might want to have a portfolio of investments which provide a regular income over a period of time. Hence, an ideal portfolio may depend on the person’s needs after retirement and it is a great idea to plan and have your investment portfolio options ready beforehand.
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Tax Saving Options for Retired Individuals
For a stress-free retirement, all we desire is the presence of a monthly salary to be able to manage our regular expenses. Opt for annuity schemes that not only provide regular income in your retirement days but also help save on taxes. In addition, unit-linked insurance plans also help build a sustainable retirement corpus. It also assists in saving taxes on your accumulated money, as it offers tax-free withdrawals to help replace your taxable pension.
Annuity Schemes
Unit-Linked Insurance Plans
Eligible for tax benefits under Section 80C of the Income Tax Act
Eligible for tax exemption of up to Rs.1.5 Lakh on premiums under Section 80C
Allows premature withdrawals depending on the policy
Allows premature withdrawals, to meet important financial exigencies
No tax is charged on invested money until you plan to withdraw it
Withdraw tax-free proceeds at maturity under Section 10D in accordance with rules mentioned in budget
You can invest in the above-mentioned tax-saving instruments to avail benefits under section 80C of the Income Tax Act and beyond. Senior citizens can avail themselves of the benefits under the lower income tax slab rates compared to other citizens. In addition to these investment options, a health insurance policy can also provide tax benefits on the premium paid under Section 80D along with enjoying financial security against rising hospitalisation costs.
Must Read - Income Tax Slab For Senior Citizen
Retirement is indeed a time to relax and live stress-free after all the years of hard work you have put in for a peaceful retired life. Making thoughtful investments is an important way to make the best use of your accumulated retirement corpus that would help keep your tax liability at bay.
Conclusion
Now, reflect on how beneficial and well-rounded a retirement plan would be if it reduced tax outlays. You, as a senior, can take advantage of special benefits by picking wisely. Select investment schemes from reputable insurers, such as ULIPs and annuity plans. Canara HSBC Life Insurance provides plans which cover benefits including long-term financial protection, tax advantages, and consistent income during your golden years.
Glossary
e filing 2.0: The advanced income tax filing platform by the government of India for simpler and quicker ITR filing.
Income Tax Slab: The structure of tax rates against various ranges of income under the New and Old tax regimes.
Section 80C: A provision of the Income Tax Act for deduction up to ₹1.5 lakh for particular investments.
ULIP: Unit Linked Insurance Plan brings insurance together with equity/debt investment.
Section 10(10D): Tax-free maturity benefits from life insurance policies, subject to specific conditions.
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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