How to Save Tax with Retirement Plans?
Apart from securing your family’s financial future and your own future income, a Retirement Plan also offers tax benefits under section 80CCC.
Let’s take a look at the tax benefits offered by different types of retirement plans:
While the interest you get is taxed as ordinary income, the principal amount is exempt from taxes. However, once you receive the principal amount in full, the payments will be fully taxable. The good thing about this is that the income tax rate will be based on the income earned at the time. Assuming that you withdraw the money after retirement, the rate will be relatively low.
There are two phases in a deferred annuity plan: Accumulation Phase and Income Phase. In case of the deferred annuity plan, your income grows tax-free during the Accumulation Phase which means that you won’t have to pay any taxes on the money that accumulates during the time of premium payment.
The premium or amount invested into the ULIP is exempted from tax under Section 80C. The amount received on maturity of this investment plan, is also tax exempted under Section 10(10D) of the Income Tax Act, 196.