If all through your work life, you have been saving for your retirement years and you think that your task is complete, you should think again. Taxes can erode your savings unless you have made the right investment choices.

After your regular income stops, further tax* deductions from your income can be a burden. Therefore, you need to plan and lower your tax outgo after retirement. In order to do this, you must understand the tax* calculations and rules that can help you gain from the available tax* benefits.

Understand the calculation of retirement taxes

Even without a regular salary, you can earn from property rents, capital gains, and interests from investments you have made. All these income sources are also taxable. The amount of tax depends on your age and annual income.

If you receive a regular pension, it is also taxable. The taxation depends on whether you receive a lump sum amount (commuted pension) or instalments spread over a period of time (non-commuted). Government employees need not pay taxes on the commuted pension. Others have to pay taxes on half the commuted sum if it includes gratuities. One-third of the commutation is free from taxes if you don’t receive gratuities. But the non-commuted pension is considered as salary and is taxable under the current tax rates.

Between 60 to 80 years of age, yearly incomes up to ₹ 3 lakh are tax-exempt. Income tax slabs for senior Indian citizens with annual incomes over ₹ 3 lakh is as follows:

Income Tax Slab Income tax rate
Between ₹ 3 lakh and ₹ 5 lakh 5% plus cess
5,00,001/- to ₹ 10,00,000/- ₹ 10,000/- + 20% of (Total income - ₹ 5,00,000/-) + cess
10,00,001/- and above ₹ 1,10,000/- + 30% of (Total income - ₹ 10,00,000/-) + cess

Income up to ₹ 5 lakh is exempt from tax for super senior citizens above 80 years of age.

Hence, even before you retire, you need meticulous planning to reduce your taxability. The principal goal here is to lower your expenses. It will help you live comfortably with incomes that do not fall into the higher tax slabs. Here are some strategies you can follow to reduce the taxes on your retirement incomes.

Pay-off debts before you retire

High-interest debts like personal loans, credit card dues, and car loans do not offer any tax benefits. The EMIs eat into your corpus.

Hence, you should aim at settling all such outstanding dues before you retire. It will help you use your entire income on your living costs. You can then continue your preferred lifestyle on a low tax-slab income.

Plan your expenses

By the time you retire, the majority of big-ticket expenses are likely to have gone out of your way. You would have already paid your children’s college fees or bought property. Hence, it is the ideal time to revise your day-to-day expenses. Track your monthly expenses. Limit overspending on items you do not need. Budget your grocery and utility bills. Restrict the use of credit cards.

Choose the right investment options

To benefit from the exemptions and deductions specified in the tax laws, choose the right investment tools. You need to invest in products offering tax-free maturity amounts. Consider the following investment options:

  1. Invest in savings bank accounts and bank or Post Office deposits. And get deductions up to ₹ 50,000/- on interests earned under Section 80TTB.
  2. Claim rebates under Section 80C and 80CCD with extended contributions to Public Provident Fund (PPF) and National Pension System (NPS).
  3. Minimise your taxes by investing in retirement-specific ULIPs and enjoy tax relief on the maturity amount under Section 10(10D)*. These long-term goal-based investment avenues allow you to gain inflation-adjusted returns through capital market investments. Yet, your equity exposure is less with balanced funds.

You can save on post-retirement taxes by keeping your expenses within low tax-slab incomes. Investing in retirement plans offering tax-free proceeds is another option. Plan well to utilise the deductions and exemptions under the tax laws and avoid paying hefty taxes during your retirement.

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* Tax benefits under the policy are subject to conditions under Sections 80C, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on the above.


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