Why do you need a tax-efficient financial plan? As frustrating as it may seem, there are various taxes that take a lot of corpus from your savings to get complete financial independence after retirement.
“While most of these taxes are unavoidable, their overall impact on one’s hard-earned savings can be mitigated,” said Tarun Rustagi, CFO of Canara HSBC OBC Life Insurance.
There are two main ways you can reduce your retirement income burden;
1. Manage your taxable income efficiently
One of the best ways to avoid losing your savings is to plan your finances in a more tax-efficient way. Thoughtful planning in advance can help you reduce taxes and help you retain enough savings for your retirement.
Rustagi explained, “Under the current provisions, the basic exemption limit for senior citizens is Rs 3 lakh. However, due to the exemption under Section 87A of the Income-tax Act, a person’s tax liability for taxable income up to Rs 5 lakh may be nil. “
He added, “Rs. 5 lakhs, it can be handled efficiently with certain types of tax-saving investments which can be deducted under section 80C of the Income-tax Act. “Among them are a life insurance policy, senior citizen fixed deposit, senior citizen savings scheme (SCSS). ) Etc. The maximum deduction available under this section is Rs. 1.5 lakhs.
2. Maximize your non-taxable income
Industry experts point out that an individual can increase non-taxable income by investing in savings that generate tax-efficient returns and on which an individual can claim tax deduction.
Rustagi explains, “One can maximize tax-free income by investing in savings in a tax-saving retirement plan that provides EEE tax benefits (exempte exempt exemp), subject to 10 per cent tax on profits above Rs 1 lakh in brackets.”
Such investments are eligible for the following 3 tax deductions:
A) Exodus 1: The amount invested is eligible for deduction from taxable income
B) Discount 2: The interest earned on the savings company during the compounding period is tax-free
C) Discount 3: The maturity value earned from the investment is also tax-free at the time of withdrawal.
The EEE facility mainly applies to long-term investment instruments
- Life insurance plan
- EPF and PPF
- Equity-Linked Savings Scheme (ELSS)
“As the famous proverb goes – ‘a penny is saved, a penny is earned’, similarly, if we plan efficiently, we will be able to enjoy our golden years without incurring tax losses for our earnings,” Rustagi concludes.