Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Term

Protect Your family’s financial future with Kotak e-Term. Know more

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family. Know more

Kotak Guaranteed Savings Plan

A plan that offers long term savings and insurance in one premium. Know more

Kotak e-Invest

Insurance and investment in one plan with Kotak e-Invest. Know more

Kotak Lifetime Income Plan

Retirement years are the golden years of life. Know more


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.

What are Deferred Savings Plans?

A tax-deferred savings account is a type of investment that enables a taxpayer to avoid paying taxes on invested funds until the funds are taken in retirement.

  • Jul 25, 2022

There are a lot of ways in which an individual can save taxes today. However, investing in policies that offer both insurance and investments can help you save taxes and make them more valuable. To save your taxes while keeping your money invested, you have options like Unit Linked Insurance Plans (ULIPs) or traditional schemes. But, one of the best ways to do it is by opting for a tax-deferred savings plan.

Many people are unaware of such a scheme and how a tax-deferred savings plan works. This article will tell you all about tax-deferred savings plans and the tax-deferred options that you can opt for. But before we move on to discuss the tax-deferred savings plan, let’s understand its definition and purpose.

What is a Tax-Deferred Savings Plan?

A tax-deferred savings plan is an investment option that allows investors to postpone the payment of taxes on the money invested until it is withdrawn. Mostly, people use this option for post-retirement income. It is a long-term investment tool and comes with multiple benefits. This financial plan comes in indexed, variable, and fixed. Based on the type of plan that an investor opts for, the computation of different rates and returns takes place. Therefore, this plan can be considered as an insurance contract that does not provide a return in the short term but is highly beneficial, specifically as a long-term investment option.

A tax-deferred savings plan is an investment option that allows investors to postpone the payment of taxes on the money invested until it is withdrawn. Mostly, people use this option for post-retirement income. It is a long-term investment tool and comes with multiple benefits. This financial plan comes in indexed, variable, and fixed. Based on the type of plan that an investor opts for, the computation of different rates and returns takes place. Therefore, this plan can be considered as an insurance contract that does not provide a return in the short term but is highly beneficial, specifically as a long-term investment option.

As its name suggests, an investor of a tax-deferred savings plan can delay the payments indefinitely. During this time, the earnings made on the plan are tax-deferred, and the tax will be charged only at the time of withdrawal and post-completion of the policy period.

However, before investing in a tax-deferred savings plan, you must ensure that you can carry out this investment for the long term and the minimum given period of the plan. Failing to continue may result in withdrawal from the plan, and you may have to pay a tax penalty and surrender charges.

How Does a Tax-Deferred Savings Plan Work?

The working of a tax-deferred savings plan may sound a bit technical but is quite simple. To understand this, you have to divide the plan into two phases.

Accumulation Phase

Accumulation phase: When as an investor, you invest money into a plan to bulk up your savings and earn tax-free interest on it

Payout Phase

Payout Phase: In this phase of the tax-deferred savings plan, the policyholder gets the payment in a withdrawal, lump sum amount or a regular income. These payments are taxable as per the current income tax slab that the individual falls in.

Tax Deferred Savings Plan Lock-In Period, Tax Penalty, And Charges

Generally, these plans are locked in for up to 59.5 years, and you are in the accumulation phase until this time. If you withdraw the money from tax-deferred plans before this period, then you will have to pay a 10% tax penalty on the amount withdrawn above your average tax slab rate that you already have to pay on your withdrawal.

Types of Charges levied on tax-deferred savings plans

Certain charges are levied on the tax-deferred plans that, as an investor, you should know.

1. Income tax

Income tax is charged on the tax-deferred savings plans as and when you withdraw the money as per your current income tax slab in India. So when you withdraw the money after the maturity of the plan, then you will be charged as per your post-retirement income tax slab. However, if you withdraw the money before your retirement age, then you will have to pay tax on the total amount as per your current income tax slab.

2. Surrender charge (In case of surrender before lock-in)

Additional surrender charges may be levied by policy providers as a penalty for their losses. So if you break the barrier of the lock-in period, then you may have to pay the surrender charge as a penalty.

3. Withdrawal charge (on withdrawal)

The company offering the tax-deferred savings plans might levy additional charges at the time of withdrawal of the fund, as withdrawal charges. These are generic charges and account towards the policy administration fee.

4. Tax Penalty

When a policyholder withdraws his/her policy before maturity, then an additional tax penalty is charged. These are charges as you have not paid the income tax on this amount, and you are choosing to violate the policy terms of the tax-deferred savings plan, under which the government allows a deferred income tax payment.

5. Annual fee

This is a mandatory fee that a policyholder needs to pay to the company as a fund maintenance fee. The policyholders are generally charged as much as 1% of the asset as a rider and management fee.

Benefits of Investing in a Tax-Deferred Savings Plan in India

In India, these plans are called deferred annuity plans. This is because of the fact that a series of payments is called an annuity, and you can withdraw as much as you want and whenever you want when invested in a deferred annuity plan.

The following are the benefits of investing in a deferred annuity plan:

1. Multiple payout options

Most savings plans offer only a limited payout option. However, a tax-deferred savings plan offers multiple payout options. This helps you in the easy and hassle-free withdrawal of funds.

2. Payment post-completion of the deferred period (generally 59.5 Years)

When you start investing in a tax-deferred savings plan, you understand it is a long-term savings plan. The best part is that the money accumulated in this plan may serve as a corpus to use in old age.

3. Benefits on tax (Tax savings)

When a person opts for a tax-deferred savings plan, then his/her tax payment is shifted to tax payment post 59.5 years. This helps you in saving your tax as you will be receiving a pension post-retirement, and it will most probably be in a lower income tax slab.

4. Ease of adding and withdrawing funds

A policyholder is free to add or withdraw funds at any time when opting for tax-deferred savings plans. This helps you understand more about your savings, manage your funds without hassle, and gives you the freedom to save more.

Tax-deferred 401(k)and IRA plans

Tax-deferred savings plans come in two major varieties: the 401(k) and conventional IRA. Investor savings are not taxed as income until they are withdrawn, often after retirement. The investor receives an immediate tax reduction because the amount saved is subtracted from gross income.

Other tax-deferred savings options

Life insurance

A person’s and his family’s financial goals can be met in a number of different ways with the aid of insurance. Tax advantages are available for all forms of life insurance plans, including endowment, term, and money back.

Public Provident Fund (PPF)

PPF is government-sponsored savings and direct tax-free investing programme for retirement planning. It is advantageous for people without a formal pension plan.

The debt market influences the PPF’s interest rate. Although partial withdrawals are allowed, the earliest one is after the sixth year, money is locked up for a 15-year period. Investors are not required to pay taxes on redemption proceeds.

New Pension Scheme (NPS)

The New Pension Scheme (NPS), overseen by the Pension Funds Regulatory and Development Authority or PFRDA, is a programme created to help people save for retirement.

It is open to all Indian citizens between the ages of 18 and 60. Due to the minimal fund management fees, it is cost-effective. Three separate accounts are used to manage money, each with a different asset profile, such as equity (E), corporate bonds (C), and government securities (G). Investors have the option of actively managing their portfolios or passively (auto choice).

The total amount that may be deducted under all of Section 80C’s subsections, including 80CCD and 80CCC, is limited to ₹1.5 lakhs.


Pensions are a type of life insurance that meets a distinct demand. Pension plans aim to support the individual and his family if he lives on, unlike protection plans (like term plans) which are designed to safeguard the individual’s family upon death financially.


Both post office time deposits and 5-year bank fixed deposits generate tax-free income. For those who have limited tolerance for risk and want to accumulate savings over the long term, they are among the greatest tax-free investments available in India.


Now that you know much about the deferred savings plan, you can make an informed decision when choosing a tax-deferred plan. Moreover, now that you know about the functioning and benefits of tax-deferred savings plans, you can decide whether it fits your long-term financial goals or not. Investing without being informed can lead to loss through penalties and charges.

Experts believe that tax-deferred savings plans investment is a safe option for long-term investment if they fit your long-term investment criteria and financial priorities. Also, these plans are adequately regulated by strict financial laws.


1. What is the difference between a 401k and a deferred compensation plan?

Plans for deferred compensation are financed informally. In essence, the company promises to pay the employee the postponed payments and any investment gains at the appointed period. In contrast, a 401(k) account has been formally formed.

2. What is an advantage of tax-deferred retirement savings?

An investment account known as a tax-deferred savings plan enables a taxpayer to avoid paying taxes on the money invested until it is withdrawn, typically after retirement. The most well-known of these programmes are 401(k)s and individual retirement accounts (IRAs).

Download Brochure


  • Increasing Life Cover*
  • Guaranteed^ Maturity Benefits
  • Enhanced Protection Through Riders
  • Tax Benefits
  • Dual Benefits: Guaranteed^Maturity + Death benefits

Ref. No. KLI/22-23/E-BB/999


Download Brochure


  • Enhanced Protection Through Riders
  • Life Cover
  • Tax Savings
  • Multiple Premium Payment Terms
  • Guaranteed @ Loyalty Addion
  • Accrued Guaranteed @ Additions

Ref. No. KLI/22-23/E-BB/490


- A Consumer Education Initiative series by Kotak Life

Similar Articles

Income Tax Exemption for Disabled

A Comprehensive Guide to Understand the ITR 7 Form

12 Tax Changes in Budget 2022 that May Impact Your Personal Financial Planning

धारा 80सी आयकर अधिनियम, 1961

All You Need to Know About Section 80C

Income Tax Deductions for Disabled Persons Under Section 80U

Easy ways to make personal savings plans

9 Income Tax Myths That Could Cost You Money while Filing returns

Personal Finance - Meaning, Importance, and Tips for Personal Finance

ITR 2 Form – Complete Guide

Should one prefer a guaranteed savings plan over monthly income schemes?

Highlights of the Union Budget 2023-24

What Investment Options Come with Tax Incentives?

Form 16, Form 16A, and Form 16B?

What is the Percentage of Tax Deducted at Source (TDS)?

Tax Season is Coming- Know How to Save Tax

What is the Difference between Form 16 and Form 16A?

भारत में महिलाओं के लिए सरकारी योजना

What is the Difference between Assessment Year (AY) and Financial Year (FY)?

How to create a savings plan and make good investment choices

Difference Between Guaranteed Savings Plan and Guaranteed Income Plan

What is HRA (House Rent Allowance) and How is HRA Exemption Calculated?

Understand ITR4 Form: How to Fill, Structure & Determine Your Eligibility

52 Weeks Savings Plan: Daily Savings Plans for a Better Tomorrow

E-Filing of Income Tax Returns in India

Post Office Savings Scheme - All You Need to Know

What is Form 26AS - All You Need To Know

How can NRIs prevent double taxation in India?

Union Budget 2023 and Tax Exemptions on Life Insurance Premium Over ₹5 Lakhs

Received an Income Tax Notice? Your Guide to Understanding Intimations under Section 143 (1)

Tax Benefits of ULIP Plans Available for NRIs

How to File Form 16 for Salaried Employees?

Types of Income Tax Return (ITR) Forms

How Do Assured Savings Plans Work and Why You Should Consider One?

How To Save Tax Using Life Insurance?

Tax Saving for Self Employed in India

Tax Saving Guide for 2019-20

How to File TDS Return?

Tax Benefits for Startups in India

How to Boost Your Savings with Guaranteed Results

Tax Planning Tips for a Newly Married Couple

Financial Planning and Best investment options for Housewives

Types of Riders in Insurance Policy

Plan your Daughter's Wedding With Best Monthly Savings Plan

हाउस रेंट अलाउंस क्या है और इसके छूट की गणना कैसे की जाती है?

TDS Due Dates of FY 2022-23 For Return Filing

Why is Form 16 Important?

What is Section 80C Deduction?

How to Claim a Tax Refund?

A Guide to Life Insurance Policy’s Tax Benefits and Taxability

Tax Benefit of Investing in Term Plan

Difference Between Gross Income & Total Income in Calculating Income Tax

sections Under Section 80C of the Income Tax Act, 1961

Money Saving Tips for Single Women

Is PF Withdrawal Taxable for NRI?

What is the difference between TDS and TCS?

Challan 280 - How to Use Challan 280 to Pay Income Tax

Income Tax Slabs and Rates in India for FY 2021-22/AY 2022-23

Income Tax Exemption for Physically Handicapped Dependent

Section 80E: Tax Exemption on Interest on Education Loan

What is the Difference Direct Tax and Indirect Tax

Understanding Tax Exemptions in ULIP (Old and New)

What is Rule 132 of Income Tax? How Does it Affect You?

How to create wealth through a savings plan?

Saving Plans to Give Children a Debt-free College Education

Income Tax Filing Using Multiple Form 16

Home Investment Plan to Buy Dream Home

Income Tax Deduction Under Section 80CCC In India

धारा 80डी आयकर अधिनियम, 1961

Section 16 of the Income Tax Act (ITA), 1961

Tax Saving Tips: Best Ways to Save Income Tax for 2021

Why PAN Card is Essential for Income Tax Filing?

Tax Structure in India

इनकम टैक्स रिटर्न कैसे फाइल करें?

How to Check Income Tax Refund Status Online in India

How to Check Income Tax Returns Status Onine?

Financial Benefits and Government Schemes Every Woman in India Should Know

प्रत्यक्ष कर और अप्रत्यक्ष कर में क्या अंतर है?

ITR 1: Sahaj Form

How Should I Allocate A Monthly Savings Plan For Long-Term Benefits?

LTC Cash Voucher Scheme October 2020 – Everything You Need to Know

How to File Income Tax Return without Form 16

How to file Form 16 online?

How to Check Income Tax Refund Status Online in India

What is Form 16B?

Tax Rate Chart for FY 2022-2023: What is TDS Slab?

How to File Income Tax Return for First Time Tax Payers

TDS rules on the sale of jointly owned property

What is a savings plan?

What is the Last ITR Filing Date and Penalty for Late Filing of ITR?

How to File Form 10E for Tax Relief on Salary Arrears?

आयकर रिटर्न (आईटीआर) फॉर्म के प्रकार

Section 10 (10d) of Income Tax Act, 1961 on Payouts of Life Insurance Policy

How To Invest In Guaranteed Return Plans For Higher Returns And Financial Security?

Save Income Tax by 31st March: Here Is a Checklist

Section 80C Deductions as per Income Tax Act, 1961

प्रधानमंत्री सुरक्षा बीमा योजना

List of Important Income Tax FAQs

What is the Maximum Maturity Benefit in Assured Savings Plans?

Budget 2019: Impact on the Common Man in India

How to Save Income Tax with Insurance

What is the TDS Rate on Salary?

How to Download Form 16?

Presumptive Taxation for Business and Profession

What is indirect tax and its types?

3 Tips to Buy Guaranteed Savings Plan

How to Save Tax on Salary Arrears?

Do Beneficiaries Pay Taxes on Life Insurance?

Income Tax Filing For NRI in India

How to Get Form 16?

स्रोत पर कर कटौती (टीडीएस) क्या है?

What is Section 80C Deduction Limit?

Insurance and Endowment: Everything You Need to Know!

Section 44AD of Income Tax Act for AY 2021-22

Difference between Section 80C, 80CCC, 80CCD & 80D

Are Financial Planning and Tax Planning the Same Thing?

How to File ITR Online

Why Tax Planning Should Be an All-year Round Activity

आयकर स्लैब 2021-2022

A Complete Guide for Filing ITR 3 Form

5 Popular Tax-Saving Schemes in India

What is TDS (Tax Collected at Source)? A comprehensive guide

Maximize Your Savings: Tax Tips for Salaries Above ₹20 Lakhs

What is Section 80CCC of the Income Tax Act 1961

Tax Saving Options other than Section 80C

What Is Advance Tax and How Is It Calculated?

What To Do If Your TDS Is Not Deposited With The Government?

Income Tax Benefits for Doctors

Investment Proofs You Need Submit To Lower TDS Cut From Your Salary

When Should TDS be Deducted and Who is Liable to Deduct it?

What is an Endowment Plan?

What are the Different Types of Taxes in India?

How much gold can you keep at home? Limits and income tax rules explained

Things to Do After Filing Income Tax Returns

What is ITR 5 Form and How to File ITR 5?

Basics of Guaranteed Savings Plan

What is Section 195 of the Income Tax Act? TDS on Non-Residents of India

Tax Saving Options for Salaried Employees

Importance of Savings Plan You Need to Know

Tips to plan your savings in 2022

ITR-6: Guide to filing ITR-6 Form online

All You Need To Know About Assured Savings Plan

Income Tax Deductions & Exemptions under Sections 80C, 80D & 80DDB for FY 2021-22 & 2022-23

How Inflation Affects Savings and Investment?

Who Should Invest In Savings Plan

How to E-Verify ITR: A Step-by-Step Guide to Electronically Verify your Income Tax Return

9 Unusual Investments you Didn't Know for Saving Taxes in India

Saving Income tax in 2017 - 18

What are Direct Taxes? How to Avoid being Overtaxed?

How to View 26AS and Download Form 26AS Online?

What is EEE in income tax? 5 tax-free investment options to become crorepat

What is ITR & How to File Income Tax Return?

What is Section 80C - Explained in Detail

Top 8 Tax-Saving Methods in India- Budget Planning

How to e file ITR on Income Tax Government Portal

8 Things to Help You Select a Savings Investment plan

Tax Planning and Tax Benefits of Life Insurance

What is TDS Exemption Limit?

What is Section 10D of the Income Tax Act?

What is TDS Slab?

Tax-Savings Investments and Options in India

Invest in Tax-Free Bonds: Understanding the Benefits and Who can Invest?

How can I get Form 16B from traces?

Personal Finance - How to Deal with Emergencies When Preparing Finances

Section 80D - Medical and Health Insurance Tax Benefits Under Section 80D

Difference Between Guaranteed and Assured Returns

Best Savings plan for the middle class in India

What is Salary Protection Insurance and Why You Need It

How to View 26AS and Download Form 26AS Online

What is Tax Deduction at Source (TDS)?

Investing Lump Sum Amount

How to save tax for salaried person?

Tax Deductions You MUST Know

सुकन्या समृद्धि योजना (SSY) के कर लाभ क्या हैं?

Difference between Section 80C and 80CCC of the Income Tax Act, 1961

All about TDS Payment Online & Due Dates

Tax Exemption and Scope of Coverage

What is capital gains tax, and how it works?

Key Changes of the Union Budget 2023 You Must Know

All you need to know About Tax on Inheritance

Have You Considered Term Insurance a Part of Your Tax Planning?

Interest Imposed Under Sections 234A, 234B and 234C

Income Tax Effects on Salary Deductions in the Union Budget 2023

What is Form 16A?

Tax-Free Income in India

Income Tax Deductions Under Section 80C

Penalty For Late Filing TDS Return

How Much Money This Budget 2019 Can Help You Save

Problems People Face with Tax Returns after a Job Change

How to File Income Tax Return - Everything You Need to Know

Impact of GST on Life Insurance in India

How To Save Tax Better with 80C

How to Pay Advance Tax Online in India

Guide for Tax Calculation on your Salary

What is TDS Refund Process?

Should you prefer a Guaranteed Savings plan over monthly income schemes?

Section 80G of the Income Tax Act

What is Tax Evasion, and What are the Penalties for Tax Evasion in India?

Why January Is an Important Month for Saving Tax?

What is better - Guaranteed Savings Plan or Fixed Deposit?

Union Budget 2023: Impact on Life Insurance

Guaranteed Return Plans-Why is it a must for you?

Everything You Need to Know About Tax Benefits of National Pension Scheme (NPS)

All about TDS on Salary under Section 192 – Kotak Life

Complete Savings Plan for Low Income Earners

How to Calculate returns on an assured savings plan?

Income Tax Calculator: How Life Insurance Policies are Taxed? Explained