Retirement Planning: What are tax benefits on savings under retirement plans?

Retirement planning involves investing a small amount every month to build a corpus fund for post-retirement years. These savings help to deal with financial uncertainties after retirement by providing a regular flow of income. Making proper retirement plans not only provides financial security but also helps an individual to meet regular expenses, without having to compromise their living standards. Given the high cost of living and rising inflation, retirement planning has become very important.

When you are planning to invest for your retirement years, there are many options. But, the tax liabilities could be a cause of concern and you may fall short of your targeted corpus fund. It’s ideal to choose different savings instruments, which should include tax-saving options as well.

Scroll down to learn in detail about the tax benefits on savings under different retirement plans.

Tax-saving retirement plans

National Pension Scheme: With this investment, individuals can contribute to their pension accounts during their service period. These funds are invested in a mix of debt and equity instruments. The investment can be withdrawn upon retirement. One can withdraw a part of the investment corpus as a lump sum and use the remaining to purchase an annuity plan.

Immediate annuity plans: Through these plans, one can make a one-time investment in a lump-sum plan and receive the money regularly as a pension for the rest of their lives. The frequency of the pension can be chosen from monthly, quarterly, semi-annually and yearly options.

Deferred annuity plan: Deferred annuity plans help investors to defer the time of pension payment. It consists of two phases including the accumulation or savings phase and the income phase. Through this plan, the policyholder can withdraw one-third of the money and can use the remaining amount to buy an annuity product.

Pension plans with a life cover: People can also opt for pension plans that come with a life cover that helps to provide coverage to the insured's family after his/her unfortunate demise.

Tax benefits under pension plans

Section 80C deductions: Many investment plans aimed at retirement benefits are eligible for a deduction of up to Rs 1,50,000 in a financial year under Section 80C of Income Tax Act, 1961. An additional deduction of up to Rs 50,000 can also be claimed for specified investments.

Tax-free growth: Any accrued interest in pension plans is free from taxation. Also, the withdrawals of interest before maturity are also free from tax.

Tax exemption for maturity amount: Upon meeting certain investment conditions, maturity proceeds from a life insurance pension plan are also exempted from taxes.