Section I: Income Tax and Your Career

• Ques: You can have tax-free retirement life
• Ans: Key points:
  • Regular income and a health cover are of priority while you plan retirement.
  • Regular income can be managed through Post office MIS (monthly income scheme), which returns 8%.
  • Senior Citizens Saving Scheme offers 9% maximum investment. Maximum investment allowed is Rs. 15 lakh,
  • Reverse mortgage your home for next 15 years after retirement with banks/HFC (housing finance companies) and get monthly payments to cover regular expenses.
  • Dividend on equities is tax free but not regular.
  • Systematic withdrawal plan (SWP) offers great value in terms of tax free withdrawal after one year of lump sum payment in equity oriented fund. You can receive commuted pension at retirement and put the money in SWP. It is convenient to manage SWP through ATMs/internet. A fix amount will be withdrawn every month from your SWP and deposited to your account. The balance amount remains invested in Mutual fund.
  • Rental income from property is more secured and conventional method of retirement planning. It offers high security of your investment than in equity oriented funds but the returns are low i e. approx 2-4% in residential property and 6 to 8% in commercial property. If you deduct the income tax, wealth tax or municipal tax payable if any the real return is very low.
  • Pension plans are offered by insurance companies through ULIPs. They offer regular income, but pension is taxable as salary income. Hence if the annual pension increases from Rs. 1.95 lakh, then you must either make tax saving investment or pay tax after retirement too. Thirty percent of your pension fund should be commuted at the time of retirement and invested in equity oriented mutual fund. You can take systematic withdrawl plan (SWP) after one year.
  • If you have surplus funds, you should invest them in growth mutual funds and get tax-free income from dividends.
  • You can also invest in monthly income plan from mutual fund.