Pension
Uncommuted pension is taxable as salary
Commuted pension is exempt – up to 1/3 if in receipt of gratuity also or up to ½ if not in receipt of gratuity.
Gratuity
Gratuity received in excess of limits specified is taxable – the current limit is 3,50,000.
Leave Encashment
Leave encashment in excess of limits specified is taxable.
- in case of a Central or State Govt. employee – fully exempted
.
Leave encashment actually received;
. Cash equivalent of earned leave not exceeding
30 days for each year of service at his credit on retirement;
. Ten months average salary; or
. Rs.3,00,000 (from 01-04-1998 onwards)
Retrenchment Compensation
Any compensation received on retrenchment, in excess of limit specified is taxable.
Payment of Voluntary Retirement
Any payment, subject to a maximum of Rs.5 lakhs and conditions specified
Superannuation Fund
Payment from an approved superannuation fund under specified conditions and limits specified is exempt.
Payment from Provident Fund
Recognised
Provident Fund – Accumulations are exempt subject to the conditions therein.
The Basic Exemption Limit for persons of 65 years and above is set higher at Rs.1,85,000.
Security of investment, liquidity, adequate regular return, cover on life / accident cover or tax benefits are the factors that help in planning retirement benefits
The basic exemption limit of 1 lakh or 1.85 lakhs(for persons of 65 years or above) should be considered to ensure that the income on investment lie within the limits.
Savings could be opted either in investments, the income from which are totally exempt or in other investments, to claim deduction
Consider
Senior Citizens Savings Scheme, 2004, carrying interest @ 9% p.a. (taxable) –
Conditions:
Multiples of Rs.1000, limited to the amount of retirement benefits or 15 lakhs, whiever is lower.
By individuals of 60 years or above.
By individuals between 55 and 60 years of age and have retired on superannuation
Investment to be made within 1 month of the date of receipt of retirement benefits.
Interest payable quarterly
Premature closure permitted after expiry of one year from the date of opening - a deduction of 2% shall be made if the account is closed before three years and 1% shall be made if the account is closed after three years and the balance paid to the depositor. No deduction on premature closure on account of death.
Account will mature on expiry of five years from the date of opening - can be extended for a further period of three years, by applying within one year of maturity.
Annuity plans of LIC – Jeevan Dhara and Jeevan Akshay are eligible for deduction
6 year Post Office Monthly Income Scheme
. Maximum investment shall be Rs.3,00,000
.
Interest @8% p.a. is paid every month in cash or deposited in the
.
Deposited amount is repayable after one year from the date of initial
deposit after deducting 2% of the amount deposited, after two years
from the date of initial deposit after deducting 1% of the amount deposited,
simultaneously stopping the monthly interest being paid after three
years from the date of initial deposit (full amount deposited ), simultaneously
stopping the monthly interest being paid.
. Interest earned and the amount received on closure/maturity
are to be included in the taxable income.