While retired people are usually aware of their finances, they can often ignore the impact of taxes on their savings. However, a little effort toward tax planning can result in valuable tax savings.
You may have spent your entire life working and fulfilling various personal and professional commitments. And, as you are approaching the retirement age, you may be happy with the savings you have accrued over the years.
However, your job is possibly not over yet. You may have stopped earning a regular salary, but you may still have tax liabilities. Therefore, it is imperative to take a closer look at your finances and devise a strategy to save income tax post-retirement.
Know Exemption Limit
To begin with, you should be aware of the income tax exemption limits.
For example, senior citizens aged 60 to 79 years are exempted from paying any income tax if their annual income is less than ₹3 lakhs per annum. For individuals aged 80 or above, the exemption limit is ₹5 lakhs per annum. These exemptions are applicable under the old tax regime.
Identify Your Taxable Income
Even though you might have stopped earning a regular salary, you can still have taxable income in the form of the following.
- Rental income
- Long-term or short-term capital gains
- Dividend and interest pay-outs
- Pension
Tax Planning Strategies
While your income after retirement can come under the purview of income tax, you can use different strategies to reduce your tax burden.
Tax Exemption on Investments
Under section 80C, you can claim a tax deduction of up to Rs 1.5 lakhs each year from your taxable income for paying the life insurance premium, public provident fund contributions, tax saving mutual funds, etc.
If your post-retirement income exceeds the exemption limit, you can invest the excess amount into these investment instruments to avail of tax exemptions.
For instance, you can consider investing in retirement plans from reputed insurance providers that can provide you with the benefits of insurance and low-risk investments.
Tax Exemption on Interest Income
The interest earned on bank accounts like fixed deposits, recurring deposits, savings account, etc., is taxable. However, senior citizens can claim a tax deduction of up to ₹50,000 under section 80TTB on their interest earnings.
Invest in Health Insurance
It is natural to experience health complications as you grow older. However, the treatment and hospitalization costs are sky-rocketing every year. In such circumstances, you need adequate health cover. It is better to have a critical illness rider with your health insurance.
Additionally, as a senior citizen, you can claim a tax deduction of up to ₹50,000 annually under Section 80D over the annual premium on health insurance.
While retirement does not necessarily mean complete relief from taxes, you can certainly and significantly lower your tax liabilities by implementing some smart strategies discussed herein. After all, your retirement fund should be primarily used for your benefit and enjoyment.
