Tax Planning for Retirement: These Smart Tax Moves Could Help Save You Lakhs

This article has been contributed by Charu Pahuja, CFP CM, Group Director and COO, Wise Finserv.

Retirement isn’t the end, it’s the start of a new, fulfilling chapter. After years of toil, it’s time to enjoy. But there’s one thing that can quietly sneak up on you: taxes. Unless you plan carefully, retirement income can be eroded by taxes, inflation, and unplanned financial structuring.

For Indian retired people, the tax plan is not only a cost-saving measure, but it is also the secret to financial freedom. Let’s break this down simply with notable tips that can help you take maximum advantage of your golden years.

Why Post-Retirement Tax Planning is Important?

Taxes are not retired with you, as you may think. Transparent sources of income, such as pension, interest, rent, annuity, and capital gains, remain subject to taxation. Good tax planning helps in:

• Take maximum benefit of tax-free income
• Reduce tax burden
• Ensure efficient withdrawals from various investment instruments
• Preserve wealth for future generations

Key Tax Planning Strategies for Retirees

Max out Your Pension

Your pension qualifies as salary income. Here’s how to get the best of it:

• Commuted Pension (lump sum): Exempt from tax for government employees and partially exempt for non-government employees under Section 10 (10A).
• Uncommuted Pension (monthly): Fully Taxable.

Strategy: Choose a mixture of commuted and uncomfortable pension to save your total tax outgo over the long term.

Take the Maximum Major Tax Deduction

Yes, it also applies to retirement after tax deduction! What can you have here:

• Section 80C: 1.5 lakh limit for investments like PPF, ELSS, Life Insurance, etc.
• Section 80D: A limit of  INR 50,000 for Senior Citizen Health Insurance Premium.
• Section 80 TTB: Interest up to INR 50,000 is free from income tax.
• Section 24 (B): Cut on the interest of home loan up to  INR 2 lakhs (if applied).

Strategy: Align your investment to take maximum advantage of these deductions.

NPS: More Than Just a Retirement Tool

If you’ve invested in the National Pension System (NPS), here’s how to optimise it:

• Extra Tax Benefit: An additional Rs 50,000 deduction under Section 80CCD (1B).
• Switch Flexibly: Tax-free switching between equity and debt allocations.
• Systematic Withdrawals: Instead of withdrawing 60% tax-free at once, choose Systematic Lump Sum Withdrawals (SLW) to distribute your tax-free income over the years.

Strategy: Keep your taxable income under the INR 12 lakh threshold to pay zero tax under the new regime.

Opt for Tax-Friendly Investment Schemes

Safe, steady, and smart choices for retirees:

• Senior Citizens Savings Scheme (SCSS): Attractive interest rates along with 80C benefits.
• Tax-Free Bonds: Government-guaranteed bonds provide tax-free interest
• Listed Bonds: Taxable at 12.5% long-term capital gains (LTCG) after 1 year.

Strategy: Allocate a portion of your money in these investments for stable, low-risk, semi-tax-free income.

Top 7 Tax Saving Investments under Section 80C

As we all know it’s tax season and we all look for ways to save tax. So, here we have rounded up Top Tax Saving investments under 80C.

StartupTalkyAbinaya Arangarajan

Time Your Withdrawals

• EPF: Entire corpus is tax-free if withdrawn after 5 years of service.
• PPF: Fully Tax-free on maturity.
• NPS: 60% corpus is tax-free; 40% is added to annuity (taxable as pension).

Strategy: Stretch large withdrawals over financial years to stay in a lower tax bracket.

Maximize Senior Citizen Exemptions

Income slabs are your benefit:

• Senior Citizens (60–79 years): Exemption up to INR 3 lakh.
• Super Seniors (80+ years): Exemption up to INR 5 lakh.

Strategy: Split assets and income across family members to make the most of exemptions. Example: Rental income

Old Regime vs New Regime: Make the Right Choice

Choose the regime that suits your income level best.

• Old Tax Regime: Best if you take advantage of many deductions like 80C, 80D, and home loan interest
• New Tax Regime: Slicker and simpler. With a rebate, income up to INR 12 lakh can be exempt for seniors.

Example:

A retiree with an income of INR 12 lakh from bonds/FDs

• Old Regime: Taxable income after deductions = INR 9 lakh. Tax ≈ INR 90,000.
• New Regime: After INR 75,000 standard deduction, taxable income = INR 11.25 lakh. Tax = ZERO due to full rebate.

Strategy: Compare both regimes and choose which saves more.

Plan Capital Gains Wisely

Capital gains can be a stealth tax sucker unless planned well.

• LTCG on Equity: First INR 1.25 lakh is exempt. Time redemptions to keep under limits.
• Debt Funds: Invest for more than 2 years for LTCG of 12.5%.
• Harvest Losses: Sell loss-making assets to utilise as set-off against gains.

Strategy: Spread sales of your assets over the years to avoid the exemption net.

Plan Your Estate Effectively

• Nominate wisely: Make sure your accounts and investments have clear nominees.
• Employ joint ownership: Reduces legal hassles for beneficiaries.
• Gift wisely: Gift tax-free to close family members.
• Establish a family trust: Best for large estates.

Strategy: A well-crafted estate plan spares your loved ones from tax surprises.

Final Thoughts

Retirement need not be about stressing over taxes. By learning the regulations and employing the proper tools, you can retain more of your money working for you, not the tax collector.

Begin early, plan carefully, and when unsure, seek the advice of a competent tax professional. Financial peace of mind is not a fantasy, it’s a plan away.

Smart retirement planning- How much do you actually need?

Are you looking at creating a retirement plan for a secure and comfortable future? If yes, you should definitely figure out the amount you need to accumulate. People often make the mistake of underestimating the future corpus they have to build to comfortably live out their post-retirement years while accounting

StartupTalkySingh Neeraj Shekhawat