Post Retirement Financial Planning in new Tax Regime

CAT Study Planner

For Indian Resident
Age group	60-80	Age group	>80
Up to Rs. 3,00,000	Nil	Up to Rs. 5,00,000	Nil
Rs. 3,00,001 to Rs. 5,00,000	10% of the amount by which the total income exceeds Rs. 3,00,000/- Less : Tax Credit - 10% of taxable income up to a maximum of Rs. 2000/-	Rs. 5,00,001 to Rs. 10,00,000	20% of the amount by which the total income exceeds Rs. 5, 00,000/-.
Rs. 5,00,001 to Rs.10,00,000	Rs. 20,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-	Above Rs. 10,00,000	Rs. 100,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-
Above Rs. 10,00,000	Rs. 120,000/- + 30% of the amount by which the total income exceeds Rs. 10, 00,000/-.
Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge

The investment limit under Section 80C was raised by Rs 50,000 to Rs 1.5 lakh in options like PPF, ELSS and small-savings instruments. The deduction limit of interest on loan of self-occupied residential property was also hiked to Rs 2 lakhs from earlier Rs 1.5 lakh the long-term capital gains tax from 10 percent to 20 percent on transfer of mutual fund units

Besides traditional pension plans, gratuity and PF, there are many investment instruments available for senior citizens, which carry no risk, and are tax efficient too. Let’s have a brief look at some of these:

Available Investment Instruments

Instrument	Returns	Compunding	Maturity	Tax Benefit	Premature Withdrawal	Other Features
POMS( Post Office Monthly Interest Scheme)	8.5 % per annum paid monthly	annually	5 years	No	Yes	Minimum investment is Rs 1500 and maximum is Rs 4.5 Lakhs for single account and Rs 9 Lakh for joint account; no default risk
SCSS( Senior Citizens Savings Scheme)	9.20%	Quarterly	5 Years	Interest Taxable	Yes after 1 year	No Loan Scheme
PPF	8-9 %	Annually	15 Years	Tax-free	Yes, from 6th Year	Loan Scheme from 3rd Year to 6th Year
NSC	8.5-8.8%	Half- Yearly	6 Years	Interest Taxable	Yes, for specific purpose	Loan Scheme
Bank Fixed Deposit	Greater than Saving Account and an extra 0.5 %	Yearly	15 days to 5 years and above	Interest Taxable	Yes	High Rate of Interest than conventional Saving Accounts

Equity/Equity Mutual funds:

Considering the government has proposed to raise long-term capital gains tax on debt- oriented mutual funds to 20% from the existing 10%, to bring parity with banks and other debt instruments with increase in period of holding from 12 to 36 months. It would be wise to maintain a small part of corpus in stocks. Though investment in stock is risky and one should avoid over exposure to stock post-retirement but considering the need for generating inflation adjusted positive return, one needs to maintain a small part of the corpus as part of the portfolio to generate inflation adjusted positive returns.

Equity oriented Hybrid Funds:

If someone doesn't want to take risk by investing in stocks. He can invest in Equity hybrid funds which are comparatively safer than stocks as 35% of the money is invested in government and corporate bonds. Debt hybrid funds invest at least 75 % funds in debt and the rest in equity.

Considering high inflation and rising medical costs, and increased taxation, investment in equity is the only way out to get inflation adjusted positive return. However, risk can be minimized by maintaining a small part of the post retirement corpus and choosing less risky funds.

References : www.incometaxindiapr.gov.in and http://finotax.com/income-tax/slabs-prop

July 29, 2014 |Manish Kumar | T A Pai Management Institute, Manipal