35586In view of reduced inflation and expenses, will it be right to invest in IT stocks?

Retirement funds are extremely precious since the receiver gets it at the end of his service life after which he is not expected to earn salaries anymore. Therefore, each and every rupee is precious and nothing should be wasted either in reckless investments of thoughtless tax planning.

Prominent Kolkata-based financial adviser Amitabha Guha Sarkar has drawn up a few Dos and Don’ts on how to plan taxes after retirement so that capital is conserved.

Make a gift
The objective is that one should make full use of the maximum deductions allowed under the Income Tax Act to minimise the taxable income.

To reduce tax liability, Guha Sarkar says that one can “gift a sizeable amount from the corpus to the son, daughter or parents who do not come under the tax/high tax brackets.”

“In such case you need not pay any tax on the income on the gifted amount. The recipient also pays ither no tax or tax at a much lower rate,” he adds.

Debt funds
He also recommends that retirees falling under high tax brackets might consider investing a part of their corpus in debt mutual funds that are quite tax efficient.

“In the present scenario, one can expect a return of 7.5% from such schemes. If the investment is held for at least three years and you make some money by redeeming the units, your tax liability will be much lower, as you will be entitled to indexation benefit allowed under the IT Act,” he says.

Indexation benefits
Incidentally, indexation benefits are applicable in the case of debt funds and not equity funds.

With the help of indexation, one can reduce long-term capital gains that brings down the taxable income. In fact, one of the reasons that debt funds are chosen by some investors over fixed deposits is the indexation benefit applicable to the former.

In 30% bracket
For those in the 30% tax bracket, Guha Sarkar has a point to emphasise.

“If you are under 30% tax bracket even after retirement, your actual income from a bank fixed deposit carrying 6% interest will be only 4.12%, considering total tax of 31.2% including health and education cess.”

According to the existing tax structure, one need not pay tax if the taxable income is within Rs 5 lakh per annum.

“If the income is well over Rs 5 lakh, say Rs 7.5 lakh, you might be able to bring it down to below Rs 5 lakh by investing in full under section 80C of the IT Act, by investing Rs 50,000 in New Pension System and certain other schemes,” he says.