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Strategies to Protect your Retirement Funds from Tax in Indian Perspective:

10:36 PM RAWAT 0 Comments


Retirement is an ending stage of your professional life, but it doesn't have to be an end to your desires from being fulfilled. To retain the value of your portfolio, you must consider a few factors like monthly expenses and inflation protection. A well-planned retirement needs a strategic investment that provides fruitful results over time.


Retirement plans provide access to a lump sum amount that has been accumulated over the years. Additionally, other saving schemes have provided enough funds to make the most of the golden years.
Majority of your investment plans would be taxable in nature. It is imperative to strategize your employed funds and income from investments to minimize taxation.

Retirement incomes and taxes:

There are various sources of income after retirements such as rent, capital gains, interest or dividend, and the equity investments in place of a fixed monthly salary. Even if you are receiving pension amount, you must pay tax depending on the payout frequencies.

Government employees receive a lump sum pension which is commuted and doesn’t require paying taxes.  However, for the non-government employees, if you have taken a gratuity facility, one-third pension is tax exempted. In case you have not availed gratuity, only half amount is exempted.

Investment in the retirement funds:

Retirement is the phase where you are dependent on the savings for your livelihood. Before reaching this phase, you have to plan for growing your save-up funds by investing prudently.  The following factors keep in mind while investing:

       Returns
       Liquidity
       Payout frequency

You must plan for capital appreciation and safety that will affect your returns as these can cross the limit of Rs 2.5 lakhs income tax exemption limit easily.

Here are some investment options which can help you to protect your retirement savings from taxes:

1.      Fixed Deposits:

Fixed Deposits is always the safest option to save taxes. 5-year tax saving deposits with banks do not require the final maturity amount to be disclosed in tax filing. The fund deposited in a Tax-saving fixed deposit is eligible for tax deduction under Section 80C.

Though company deposits are not tax-free, they offer flexible interest payouts and gain from higher interest rates for the senior citizens. Senior Citizen Fixed Deposits from Bajaj Finance offer an interest rate of 9.1%. It is a secure investment option which generates a higher rate of return as compared to the savings accounts or other fixed-income investments.

If you need a greater flexible tenor, choose the non-cumulative fixed deposit for maximum return.

You can avail loan service against your fixed deposits up to 60% of your maturity amount. Bajaj Finance FD offers up to 75% of the maturity value as loan.

2.      Public Provident Fund (PPF):

This is one of the preferred options to park your money. You can deposit up to Rs.1.5 lakhs in the whole year which comes under tax deductions. After completing seven years, you can withdraw some amount not exceeding 50% of your corpus.

3.      Senior Citizens Savings Scheme (SCSS):

As the name suggests, it is a savings plan specially designed only for the senior citizens with an interest rate of 8.7%. You can make an investment of up to Rs. 15 lakh under this scheme. This offers a tax deduction. SCSS has a tenor of five years which offers quarterly interest payouts.

4.      Equity Linked Savings Scheme (ELSS)

Under ELSS, you can deposit Rs.1.5 lakhs each year and have a lock-in period of only three years. All returns earned are tax-free. This scheme offers capital growth and tax-free returns. Being linked to equity markets, it carries a high amount of risk on the value of the funds.

5.      Investing in balanced mutual funds:

Some balanced mutual funds invest partially in the equities and debt instruments. You can also select Debt Mutual Funds for their lower risk and tax-free nature. They invest 35% of funds in government and corporate bonds, hence are safer than ELSS.
             
To create a continuous stream of income, you can create fixed deposits with differing maturity timelines and ladder your returns. Bajaj Finance FDs are safe and stable investment options certified with ICRA’s Rating (MAAA Stable Rating) and CRISIL’s FAAA/Stable rating.

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