3 post-retirement taxes everyone should know about

Disappointing as it may be, there are various taxes that take a large amount of corpus from savings and thus it clearly calls out for tax-efficient financial planning which will allow complete financial freedom after retirement.

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As and when long-term investments mature and your investment preferences change, your tax scenario is likely to change once you retire.

Most people at the end of their professional lives look forward to enjoying the benefits of their hard-earned savings and leading stressful free golden years. However, experts point out that life after retirement is always not the same as what an individual thinks or plans. 

Tarun Rustagi, CFO, Canara HSBC OBC Life Insurance says, “With all the returns on investments comes the uninvited gift of Taxes too. Disappointing as it may be, there are various taxes that take a large amount of corpus from savings and thus it clearly calls out for tax-efficient financial planning which will allow complete financial freedom after retirement.”

Plan for these three taxes post-retirement 

As and when long-term investments mature and your investment preferences change, your tax scenario is likely to change once you retire. With a regular pension, the following incomes form a major part of your taxable income:

  1. Rental income 
  2. Income from the sale of assets, i.e. capital gains
  3. Income from other sources like Interest, dividends etc 

I. Tax on Income from house property

For most pensioners, rental income forms a major part of post-retirement income. “For tax purposes, this income is usually classified as rental income. Rental income from house property increases one’s gross taxable income which is charged as per the income tax slab,” explains Rustagi.

II. Tax on capital gains

Capital gains are usually classified as taxable income if; 

  1. The asset that has been transferred is a capital asset; 
  2. If you transferred the aforementioned asset at any time during the previous year;
  3. If you’ve gained certain profits or gains from said capital transfer

“Capital gains are usually assessed based on the holding period of the asset and classified as either long-term or short-term capital gains,” says Rustagi. 

Here’s how capital gains are identified for taxation (as per the current regime):

Type of investmentLong term AssetTax Treatment on capital gainsShort term AssetTax Treatment on capital gains
Equity funds (Listed); Equity-oriented hybrid fundsMore than 12 monthsTaxable @10%, if more than Rs 1lakhLess than 12 monthsTaxable @ 15%
Equity funds (unlisted)More than 36 monthsTaxable @20% after indexation; 10% before indexation.Less than 36 monthsTaxable @ 15%
Debt funds and debt-oriented balanced fundsMore than 36 monthsTaxable @20% after indexationLess than 36 monthsTaxable @ 15%

III. Income from other sources like Interest, dividends etc.

“Depending on the investment portfolio, dividends and interest form a major part of one’s post-retirement income,” points out Rustagi. 

He further adds, “These are considered interest-bearing securities and form a large part of one’s taxable income and are taxed accordingly.”

  • For all investments in equity shares, your dividends earned are taxable at 10 per cent. 
  • Make sure to submit your PAN details to the payer. If this condition is not met, the payer will need to deduct tax at source (TDS) at a rate of 20 per cent.

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