Tips for Better Tax Planning Post Retirement
Achieving financial security in retirement requires advance investment planning and commitments and, yes, better tax planning.
Nov 2022
4 mins read
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Post retirement, while your regular salary stops, all your other income sources continue to be taxable. These tax-deductions are a burden. Your pension too is taxable unless you were a government employee. Taxes erode life’s savings unless your investment options are right. To maintain your lifestyle, to cover your daily and medical expenses without worrying, to beat inflation, to prepare for uncertainties in your retired life, and to meet your retirement goals independently, you need efficient tax planning. Smart tax planning will help lower your tax liabilities and provide you with adequate funds to last your lifetime.
Hence, understanding the tax rules and calculations helps you gain from the available tax benefits.
Tax rules and structure applicable to tax paying pensioners - seniors and super seniors as per AY 2021-22:
● The Standard Deduction limit (portion of your income not subject to tax) is Rs. 50,000 (or pension amount, whichever is lower)
● Pensioners can opt for the existing Old Tax Regime or the New Tax Regime.
Tax slab for seniors (60+ years)
Tax slab for super seniors (80+ years)
● Senior citizens can claim deductions on payment of health insurance premium up to Rs. 50,000 under section 80D.
● Exemption benefits applicable to both senior and super seniors:
- Senior citizens get a tax exemption of Rs. 3 lakh. For the next slab of Rs. 3-5 lakh, tax @ 5% is applicable for senior citizens.
- Super senior citizens get an exemption benefit of Rs. 5 lakh.
● Tax benefit on interest income: For senior citizens there is no tax liability on interest of up to Rs. 50,000 earned on savings bank accounts, bank and post office deposits, in a financial year - as per deduction under section 80TTB.
● In the case of treatment of critical diseases, senior citizens get a deduction up to a limit of Rs. 1 lakh under section 80DDB. If an individual on behalf of whom such medical expenditure is incurred is a senior citizen, then one can claim for deduction up to Rs 1,00,000 per annum
● A major source of income for senior citizens may be a reverse mortgage from their owned accommodations. While the senior citizen remains the owner of the property, they can earn monthly payments for mortgaging it. The instalment amount is exempt from tax.
To manage your income and expenses efficiently, you need to plan your taxes well. Here are some ways to plan your tax to ensure good personal finance health after retirement:
● Calculate your retirement corpus:
This will help you estimate the funds you would require to meet your expenses in your retired life, and the amount of investments you need to make for it. Take into account the rate of inflation and life expectancy when calculating the funds required to manage your daily and monthly expenses. This will help you calculate the amounts of investments required for retirement planning.
● Invest in debt mutual funds:
Those retired can invest in liquid mutual funds. This is a low-risk solution where the investments are made in debt securities and money market instruments. Compared to bank deposits, investments in debt mutual funds offer tax-efficient benefits if held for more than 36 months due to indexation benefit.
● Invest in post office schemes:
Post office monthly income scheme is a good tax-saving instrument to consider. If you fall below the tax-exemption limit, you could invest a part of your funds there. This scheme, with a 5-year lock-in period, offers good returns. The investment limit is Rs. 4.5 lakh for individual holders3, and Rs. 9 lakh for joint holders. If you are looking for monthly pay-outs without a lot of investment risks, then this instrument is good for you. The interest pay-outs, though, will be taxable.
● Get medical insurance:
Hospitalisation can erode your savings. A health insurance will protect your hard-earned funds from such unexpected expenses. Senior citizens can claim deduction on payment of health insurance premium of up to Rs. 50,000 in a financial year under section 80D.
So plan well to avail the deductions and exemptions under the tax laws and avoid paying high taxes during your retirement.
Tax planning is a crucial part of financial planning. Smart Tax Planning and going for tax-efficient investments can help you enjoy a stress-free retired life.
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PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
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Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
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All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindia.com/mutual-funds/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
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