Tax Benefits In Retirement Plans
Updated On Sep 01, 2022
Table of Contents
The tax advantages offered by a retirement insurance plan are particularly appealing to potential participants. This is a strong argument in favor of investing in a decent retirement plan, so you should do so. There are a great number of different explanations. Before investing, one should know everything there is to know about the advantages of taxability for pensions, including the ways you and your family may make the most of these advantages.
Tax Benefits in Retirement Plans
When you invest in a retirement plan, you get tax benefits in many different ways. They are -
- Tax Rebate Under Section 80ccc: If you pay a premium for an annuity plan, you can get a tax refund of up to INR 1.5 lakhs a year under Section 80C of the Indian Income Tax Act.
- Tax Rebate Under Section 80d: Some riders, like the critical illness rider, give you more tax breaks under Section 80D. Attaching these riders to your retirement insurance policy gives you tax breaks under Section 80D because it includes a health insurance component.
- Tax-Free Death Benefit: If you die during the policy's accumulation phase, your beneficiaries will receive a death benefit. This won't cost you anything in taxes because, in India, all life insurance payouts, especially those made after the policyholder dies, are tax-free. If you die during the policy's accumulation phase, your beneficiaries will get a death benefit. This won't cost you anything in taxes because, in India, all life insurance payouts, especially those made after the policyholder dies, are tax-free. The pension annuity you get when your pension vests is, however, subject to taxation at your marginal rate.
Retirement Plans in India That Come With Good Tax Benefits
Following are some of the retirement cum investment options that offer tax benefits -
- Public Provident Fund
The Public Provident Fund Like EPF, it is tax-free because it is EEE, which stands for "Exempt-Exempt-Exempt." People who live in the country can give up to Rs 1.5 lakh per year. It is in Section 80C of the tax code. The money from interest and when the bond matures is not taxed. But, based on the rules, you can take out part of your money tax-free.
- Investment-Linked Savings Scheme
Investment-Linked Savings Scheme (ELSS) If you invest in ELSS, you might get a yearly tax credit of up to Rs 50,000 and an annual savings of up to Rs 46,800. Under Section 80C, the only form of mutual fund that can get tax breaks is an ELSS. Under section 80C, you can deduct an annual investment or a regular SIP into an ELSS. Section 80C lets you deduct an ELSS investment made once a year or through a regular SIP.
- National Pension System
The Tier 1 Account is part of the National Pension System. Any NPS subscriber can get a tax break under Section 80 CCD (1) up to Rs. 1.5 lakh, and Section 80CCD lets them deduct up to Rs. 50,000 of their own contributions each year (1B). This deduction is in addition to the Rs 1.5 lakh deduction given by section 80C. Employer contributions of up to 10% (basic and DA) of salary, but not more than 7.5 lakh, are also tax-deductible for the employee under section 80CCD. This includes contributions to NPS, EPF, and superannuation funds.
- Gratuity
Gratuities are employer-provided bonuses not included in monthly pay. The 1972 Gratuity Act controls tips. Section 10 exempts up to 20 lakh in gratuity from firms covered by the Payment of Gratuity Act, including all past employment (10). However, there is a lifetime cap of Rs. 10 lakh on the tax-free status of gratuity received from an employer not subject to the Payment of Gratuity Act. Gratuity is half of the average basic wage for the previous ten months, multiplied by the years of service.
Conclusion
Beginning to plan for one's future should never be put off until it is too late. You should make an investment in the pension plan of your preference as soon as you can now that you are aware of All the tax benefits that are associated with pension plans. This will allow you to live a steady and worry-free life once you retire.
Also read: Different Types of Pension Plans
