Six steps to plan for taxes after retirement

Before retirement it’s essential for you to plan your taxes, investments, and returns. Today, the Financial Express reports few tips to help you chalk out your retirement earnings and taxes on it.

Compute your outlay

Suppose, currently you are aged 30 years, a sum of Rs 25,000 per month is required for your personal expenses. But, if the rate of inflation is around 6 per cent and you plan to retire at 60, then an inflation-tuned sum of nearly Rs 1.44 lakh per month is required for your personal expenses. However, if you plan to retire at 60, and assuming you live on till 80 years, you must assemble an outlay of around 3.45 crores. If you are currently 30 years old, then approximately you have 30 more years to gather retirement capital. Hence, if you decide to invest in an approach which provides you a return of about 12 per cent over 30 years, then your per month SIP would be equal to Rs 9,860 to gather a retirement capital of approximately Rs 3.45 crore.

Higher exemption limit

Income tax basic exemption limit for the senior citizens (above 60 years of age) is Rs 3 lakh. Senior citizens aged 60 years plus can avail an income tax exemption till Rs 3 lakh, for the 80 plus year citizens the income tax exemption limit is Rs 5 lakh. In case your tax liability crosses Rs 10000 you need not worry about paying advance tax on your pension. The Income Tax Act states, senior citizens receiving earning from other sources besides business or profession need not pay advance taxes.

Section 80C: Invest and save taxes

You are bound to pay income taxes, if the taxable income surpasses Rs 3 lakh. However, many tax saving options and rebates are there to rescue you under the I-T act. Deduction till Rs 1.5 lakh can be claimed on the premium paid on your life insurance plans, contribution to PPF, investment in mutual funds, NSC contribution, 5-year fixed deposits etc. Hence, it is advisable to exploit the limit of 80C and claim the tax benefits. Collate different investment options on the grounds of interest rates, returns, taxability, etc. The interest rates on FDs for senior citizens are higher than other individuals. So, it would be advisable to invest your money in them.

Interest on savings bank account

If you are a senior citizen you can claim deduction till Rs 50,000 u/s 80TTB of I-T act after FY 2018-19. The deduction are available on the interest income from bank deposits, post office deposits and deposits held with co-operative societies, given that the interest income is included in your taxable income.

Grab medical insurance

Health insurance besides providing tax benefits u/s 80D of the I-T act, also provides you a health cover during medical emergencies. If are aged 60 years, you can grab till Rs 50,000 of the health insurance premium paid in a fiscal.

Keep liquidity for urgency

Majority of your investments have a particular deadline. You may incur loss of returns if you don’t plan redemptions to fix the emergencies. Having a reserve (urgency) fund is critical to meet monetary needs in contingencies. You can deposit expenses of 3 – 6 months to address that issue. Liquid funds fetch higher returns than a savings bank account. Further, these don’t have an exit stack to confirm that your money is reachable when you need it urgently.

(With agency inputs)