Take Ajay, who is enjoying his farewell party at office and is looking forward to spending his time with family. Knowing that there would be no more contributions to the Provident Fund to protect his future, he decided to discuss with his good friend, Jayesh, ways to save taxes post-retirement as tax-saving, in itself, would lead to an additional cash flow.
Ajay was aware that having attained 60 years of age, the minimum threshold limit would be R2,50,000 against R1,80,000 earlier, which is a direct savings of R7,210. As Jayesh started with the oft-repeated phrase that death and taxes are certain in life, he continued that there are quite a few ways to save taxes post-retirement.
Knowing fully well that Ajay wants to maximise his returns and, at the same time, has a very low risk appetite, Jayesh suggested that Ajay could invest in bank fixed deposits (FDs) or Senior Citizens Savings Scheme (SCSS), which qualify for deduction under Section 80C of the Income Tax Act, 1961. The lock-in period of such FD/SCSS is five years. The interest earned from such FD /SCSS is taxable.
For earning a regular income, Jayesh suggested the option of reverse mortgage scheme. On
Ajays puzzled look, he explained that the house owner gets monthly payments from the bank, which represents a loan from bank, and is not subject to tax.
As Ajay moved forward, he saw a big advertisement of tax-free bonds. Jayesh nodded that no deduction is available on investment in such bonds, but the interest earned on such bonds is exempt, which makes it a very attractive proposition.
Ajay rued that medical insurance cover taken by his employer would no more be available and, at this age, having a medical insurance cover is a must for exigencies. Jayesh added that apart from providing medical cover, payment of medical insurance premium for self and family is also eligible for a deduction under section 80D of I-T Act up to R15,000.
Jayesh enlightened Ajay on the deduction available on investment in infrastructure bonds of up to R20,000, though the interest received on them is subject to tax. Jayesh also suggested that Ajay continue with PPF as the contributions are eligible for deduction under Section 80C of I-T Act and interest earned on them is also exempt.
Jayesh signed off by harping on the fact that there are lot of options available today for retirement planning, especially in terms of pension plan, which would take care of his post-retirement needs and also lower tax liability for him.
n The writer is senior tax professional with Ernst & Young