How retirement planning helps you save tax

You work hard during your active working years to provide your family with a comfortable life. The money that you make will usually be enough to maintain their lifestyle. However, your income might not suffice to fulfil your post-retirement goals if you invest in a prudent manner. An excellent way to ensure you have enough funds for retirement is by investing at a young age, which will eventually allow in garnering high returns.

Today, retirement planning is easier due to the availability of multiple tax saving investment plans in India. Moreover, the right plan will prove out to be an efficient tool for retirement planning. Let’s take a closer look at the various tax-saving retirement plans available in the market:

  1. Unit Linked Pension Plans

A Unit Linked Pension Plan allocates your investments across different asset classes like equity funds and debt funds in varying proportions based on your preference. Since a ULIP policy is a market-linked product, it provides you with high returns as compared to traditional retirement investment plans. You can choose between these funds based on your risk appetite. In addition to this, a retirement investment plan is an effective tax-saving tool. Under Section 80C of the Income Tax Act, 1961, you can claim tax deductions up to Rs. 1,50,000. An excellent way to utilize the benefits of retirement plans is by purchasing a plan at a younger age.

  1. Immediate Annuity

An immediate annuity plan is a guaranteed pension plan. When you buy an immediate annuity plan, you should pay a lump-sum amount to receive a steady flow of income. The tax-savings on this type of a retirement policy will begin with an immediate effect. While an immediate annuity plan allows tax-exemption, the interest is taxed as ordinary income. When you receive the principal amount in lump-sum, the payments are taxable albeit at a rate of interest depending on your income at the moment. When you withdraw the pension amount after retirement, the interest rate might be relatively low.

  1. Deferred Annuity

Under a deferred annuity plan, you can delay the income payment until the time you wish to receive it. A deferred annuity plan works in two ways as follows:

  1. Accumulation phase

In the accumulation phase, you pay the premium amount for a specific number of years.

  1. Income phase

In an income phase, you get to withdraw one-third of the accumulated amount, which is tax-free. The withdrawn amount can be utilized to buy an annuity that allows you to generate a regular income for the rest of your lives.

In addition to this, a deferred annuity plan is of three different types:

  • Fixed income annuity

Under a fixed income annuity, you can receive a fixed income, which is equally proportionate to the principal amount as well as the interest rate. Many life insurance policies are crafted as fixed annuities.

  • Variable deferred annuity

A variable deferred annuity will allow you to invest your money via fund-like structures since the available income depends on your fund performance.

  • Equity indexed annuity

As the name suggests, an equity indexed annuity is linked to the performance of your equity-index, which is selected by you. Moreover, it is a fixed annuity, which offers income.


In a nutshell, pension plans in India provide you with an additional benefit of sheltering your money from taxes. While all plans create a tax-deferred value, the rest of the retirement investment plans will enable to shelter your current income as well.

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