What Are Tax Benefits On Saving For Retirement Plan?
Close
Close

Buy a life insurance plan in a few clicks

Now you can buy life insurance plans completely online right here.

  • Icon for Kotak Preferred e-Term Plan

    Kotak e-Term Plan

    Kotak e-Term Plan is a pure term plan that provides a high level of protection to your loved ones in your absence.

  • Icon for Kotak Preferred e-Term Plan

    Kotak Health Shield

    The Kotak Health Shield Plan helps secure your finances in times of sudden medical expenses related to illness such as Cardiac, Liver, Neuro and Cancer (all early and major stages of illness /conditions of Cancer); along with offering protection for Personal Accident - in case of accidental death or disability.

  • Icon for Kotak Preferred e-Term Plan

    Kotak Lifetime Income Plan

    Kotak Lifetime Income Plan gives you the assurance of your income continuing throughout your life and in your absence throughout the lifetime of your spouse!

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

Back

What tax benefits are there on saving for retirement?

View Plans
  • 27th Aug 2021
  • 89
What tax benefits are there on saving for retirement?

All ready to hang up your boots? On hitting the retirement milestone, you’ll bid farewell to the daily grind and hectic commuting but not your tax liability. Yes, that’s right! The pension received for services rendered post-retirement is taxable as per the Income Tax slab fixed by the Government of India. It’s thus critical to plan the financial security of your golden years very carefully. The trick is to minimise tax by investing the retirement fund prudently in the right pockets. Let’s find out how.

1. Special Income Tax Benefits

The income tax law provides special benefits to senior citizens (60-80 years) and very senior citizens (above 80 years). They enjoy a higher basic exemption limit. Senior citizens with an annual income of Rs.3 lakhs do not need to pay taxes, whereas, for super senior citizens, the limit is raised to Rs.5 lakh. Also, senior citizens without a business income are not required to pay advance tax as per IT Act.

2. Taxation on Pension Plans

Investment in pension plans is a good option. There are several schemes available, like a deferred annuity, immediate annuity, and life annuity, among others. An adequate pension plan provides financial security for the future and also comes with insurance coverage. What’s more, it qualifies for tax benefits under Section 80C, 80 CCC, and 80 CCD. However, do know that tax on pension is calculated just like a tax on income or salary. The pensions you receive are added to your income and taxed as per the slab.

3. Taxation on Bank Fixed Deposits:

Senior citizens can park a fraction of their retirement fund in fixed deposit (FD) schemes. FDs are a reliable investment avenue that can provide retirees with a secure and steady source of income. Not to mention, banks offer seniors a 0.5% higher interest rate. Also, the principal amount deposited in tax saver FDs for 5-year tenure is eligible for tax deduction under Section 80C of the Income Tax Act.

4. Investment in Mutual Funds and Taxes

Equity mutual funds (MFs) can also be part of your retirement portfolio. Equities are widely acknowledged as the best performing asset class for wealth creation over the long run. You can diversify further across large-cap and balanced funds with some exposure in monthly income plans (MIPs) that ensure steady income via dividend payouts. Debt funds are also a good choice as they are tax-efficient and provide easy liquidity. The long-term capital gains acquired from debt funds get taxed at 20% after indexation if held for three years or more.

5. Tax Benefit on Health Insurance Plans

A comprehensive health insurance plan offers dual protection. It not only covers the medical expenses incurred in the event of an illness but also helps save tax. Senior citizens can get a deduction of up to Rs.50,000 in a year under Section 80D for payment of medical insurance premiums. And yes, preventive health check-up expenses to the tune of Rs.5,000 are eligible for tax exemption. Also, as per section 80DDB, a senior citizen can avail tax exemption of up to Rs.1,00,000 against the treatment of specified diseases.

The Final Say

As you can see, there are several ways to save taxes when you start planning or even enter your retirement years. The golden rule is to evaluate your tax liabilities and choose a low-risk plan that offers good returns for enjoying a comfortable life after retirement.

- A Consumer Education Initiative series by Kotak Life

Tags

Also read

  • Long Term Investment Guide for Your Retirement
    • 30th Nov 2021
    • 5

    Long Term Investment Guide for Your Retirement

    A retirement plan ensures sufficient financial coverage & it's crucial to prioritise your long-term investments when you're investing for your retirem...

    Read more
  • Top 6 Flexible Benefits That ULIPs Offer
    • 10th Oct 2021
    • 91

    Top 6 Flexible Benefits That ULIPs Offer

    Here are the top 6 benefits offered by Unit Linked Insurance Plan (ULIP) for a safe and financially secure retirement. Start boosting your retirement ...

    Read more

Related Plans

  • Kotak e-Term Plan - Online Term Insurance

    Kotak e-Term Plan - Online Term Insurance

    Kotak e-Term Plan is a pure term insurance plan that provides a holistic life protection at affordable prices. Find out the eligibility criteria, key ...

    Know more
  • Kotak Gratuity Plus Group Plan

    Kotak Gratuity Plus Group Plan

    Kotak Gratuity Plus Group Plan is a unit-linked group gratuity plan that helps you fund for the gratuity obligation systematically & effectively and r...

    Know more
  • Kotak Assured Savings Plan

    Kotak Assured Savings Plan

    Kotak Assured Savings Plan is an affordable protection plan that enables you to accumulate wealth and strengthens your finances for the future.

    Know more
  • Kotak Assured Return Employee Benefit Plan

    Kotak Assured Return Employee Benefit Plan

    Kotak Assured Return Employee Benefit Plan is an insurance plan designed for Employers /Trusts, Employer – Employee groups who wants experts to mana...

    Know more