To ensure a smooth retirement, you must plan your finances in advance. Make it a priority to invest in the right avenues to multiply your wealth and also to reduce your tax liability. This will allow you to bolster your income post retirement and help you live a financially secure life after retirement.
Take a look at the various investments that you can make to enjoy greater tax benefits and exemptions.
Invest in Company FDs: Fixed deposits help you benefit from high rate of interest as well as tax benefits. Under Section 80C of the Income Tax Act, 1961, you will only have to pay tax in case you earn returns over Rs.10,000. If your total income is less than the taxable bracket, submit form 15G/15H to avoid having to pay tax. Apart from this, you can also invest in tax-free FDs. These deposits come with a lock-in period of 5 years. But, they do give you the chance to benefit from tax deductions of up to Rs.1.5 lakh, as per Section 80C.
You can also use your earnings from your EPF or PPF on maturity to invest in a Fixed Deposit (FD). This way, you’ll be able to earn a higher rate of interest on this sum and can turn it into a monthly payout with a non-cumulative fixed deposit. Consider the banks and nbfcs, where senior citizens get higher interest rates along with excellent security and flexibility.
Start a Senior Citizens Saving Scheme (SCSS): Senior Citizens Saving Scheme is an investment option that is customised to suit the needs of retiring citizens. It offers you an interest rate of 8.4% and involves investing a sum ranging between Rs.1,000–Rs.15 lakh for a period of 5 years. This scheme lets you claim up to Rs.1.5 lakh as tax deduction under Section 80C, in the year when you start your SCSS. But, remember that if you withdraw from the scheme prematurely, you will lose your tax benefit.
Consider Tax-Free Bonds: These are securities issued by the government to raise finance for various government projects. Interest earned from these bonds is completely free from taxation under Section 10 (15) (iv) (h). But, don’t forget to declare the exempted interest amount when you file your taxes. Note that these bonds will be taxed in case you make a capital gain. This means that if you sell the bonds within a year, the gains will be taxed as per your tax slab. Post that period, they will be taxed at 10% or 20%, depending on the indexation.
Reverse Mortgage Schemes: In a reverse mortgage scheme, you can receive monthly payouts against the value of your home. This is a great way for you ensure a monthly income post retirement. But, more importantly, this scheme offers you excellent tax benefits. The money gained is not considered as income and is exempt under Section 10 (43). If and when you sell the property, you will have to pay capital gains tax.
Sign up for Health Insurance: Health insurance is an absolute must, but don’t forget to take advantage of its tax benefits as well. In these schemes, you enjoy a deduction of up to Rs.25,000 if you’re under the age of 60, and Rs.30,000 if you’re over the age of 60, as per Section 80D of the IT Act. This also includes deduction on money spent on health check-ups, up to Rs.5,000.
Pick a Pension Plan: These plans will give you a deduction of up to Rs.1.5 lakh, on the amount that you deposit, as per section 80CCC of the Income Tax Act. If you withdraw up to one-third of your pension fund, you are exempt from paying tax.
You can live a fruitful, financially secure retired life by investing in Senior Citizen FD & by following these tips and invest in the right investment schemes.