How to Club Tax Benefits and Retirement Planning to Ensure Peace of Mind

Retail investors are often troubled by Tax implications when making their retirement plans. After all, you want a stress-free and comfortable retirement, and high tax liability can make it difficult to meet your financial goals in your twilight years. So, let’s take a look at some of the most rewarding and tax-friendly investment options that you can consider for your retirement.

Public Provident Fund (PPF)

Almost every salaried individual knows what a PPF is, and chances are that you have an account yourself. The question is, what kind of tax benefits does it offer? Well, for starters, Section 80C of the Income Tax Act allows you to deduct your contribution towards PPF, although it’s capped at Rs. 70,000. Plus, you don’t have to worry about paying taxes at the time of maturity as the interest earned is also tax-free.

Needless to say, PPF is a good long-term investment (minimum lock-in period of 15 years) with a decent rate of return of 8%.

Equity Linked Saving Schemes (ELSS)

ELSS are known for their tax benefits and can certainly be included in your retirement plans. They come with a 3-year lock-in period which is the lowest compared to other investments benefiting from Section 80C. Plus, you get to invest through an SIP which makes long-term investment simpler and affordable.

ELSS investments allow you to deduct up to Rs. 1.5 lakhs from your taxable income per year. They also offer some of the best rates of return of 15% to 18%.

National Pension Scheme (NPS)

The National Pension Scheme is easily one of the most popular tax saving investment options for retirement. It’s backed by the central government and offers regular pension after retirement. It also offers tax benefits under Section 80C and Section 80CCD.

In NPS, there is no upper limit on the investment contribution and you can expect to receive an 8% to 10% rate of return. You can enjoy a tax deduction up to Rs. 1.5 lakhs under Section 80CCD (1) which is a part of Section 80C and an additional contribution up to Rs. 50,000 under Section 80 CCD (1B).

So, these were some of the most highly recommended tax saving investments for retirement purposes. That said, there are a few other lesser-known options that you can consider as well which are:

  • National Saving Certificate (NSC)
  • Voluntary Provident Fund (VPF)
  • Rajiv Gandhi Equity Saving Scheme (RGESS)

Since there are so many investment options, you should take your time and conduct an in-depth comparison. Ideally, you should look for investments that offer EEE tax treatment through which your money is exempted from taxes at the time on investment, accumulation, and withdrawal. However, the return on investment is also an important factor to consider.