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44. Retirement Plans for Maximum Utilisation of Savings

It is absolutely necessary to have proper utilisation of savings which could be of great help at the time of retirement to all persons whether they are employees or self-employed professionals. This is particularly so because there are no proper retirement benefits available from the government for welfare of the people in post-retirement period. Plans for post-retirement utilisation of savings would differ from person to person as they would depend upon the person’s income, the needs of the person and members of his family, their age, their aspirations, the time available for making investment, the family commitments in preand post-retirement period, etc. However, one strong advice which I can give is not to indulge in risky and speculative ventures as regards utilization of savings for retirement plans. The focus of utilization of savings should be such that it should enable one to save income tax on the one hand and should enable the person to have good deal of money under his control at the time of retirement on the other. With this view, I am giving a few important tips as retirement plans for maximum utilisation of savings and for actual implementation as per the circumstances of the person concerned.

Have an HUF Income Tax File
Many employees, who are Hindus (including Jams and Sikhs), do not have a separate file for the HUF. However, it is possible even without any ancestral property for a Hindu to have a separate status of Hindu Undivided Family (HUF) and get separate exemption of ` 2,50,000 for the Hindu Undivided Family for the income to be earned during the financial year 2017-18 relevant to the assessment year 2018—2019. Besides, a separate deduction up to ` 1,00,000 in respect of investments can be made through the HUF. For this purpose, what one needs is gift from friends and relatives (other than members of the HUF) supplemented by interest-free loans or loans at low rates of interest from relatives and friends. There can be a Hindu Undivided Family with husband and wife only.


Net Income Range

Income-Tax Rates

Education Cess

Secondary And Higher Education Cess

Up to Rs. 2,50,000




Rs. 2,50,000 – Rs. 5,00,000

10% of (total income minus Rs. 2,50,000) [*]

2% of income-tax

1% of income-tax

Rs. 5,00,000 – Rs. 10,00,000

Rs. 25,000 + 20% of (total income minus Rs. 5,00,000)

2% of income-tax

1% of income-tax

Above Rs. 10,00,000

Rs. 1,25,000 + 30% of (total income minus Rs. 10,00,000

2% of income-tax

1% of income-tax


Surcharge : Surcharge is levied @ 15% on the amount of income-tax where net income exceeds Rs. 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income-tax plus surcharge.


However, marginal relief is available from surcharge in such a manner that in the case of a person having a net income of exceeding Rs. 1 crore, the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.


AMT : In the case of a non-corporate taxpayer to whom the provisions of Alternate Minimum Tax (AMT) applies, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of "adjusted total income" as per section 115JC. For provisions relating to AMT refer tutorial on “MAT/AMT” in tutorial section.

Trust for the Children’s Needs
To provide for higher education and marriage of son or daughter, a person requires money at the relevant time. For this purpose, it is necessary to have a plan to keep savings duly invested under a trust for the marriage or education of son or daughter. There can be a hundred per cent specific beneficiary trust and it can be created by the investor himself or through his close friend or relative. Such a trust deed should provide for the accumulation of the income of the trust during the minority of the child so that the money is available for being spent on the education, etc. of the child when he is major. During the minority of the child, the income of the minor child under the trust would not be added with the income of the father or mother as per the principles laid down by the Supreme Court of India in the case of C.I.T. v M.R. Joshi [1995] 211 ITR 1 (SC).

Planning for a Residential House
Every one should plan to have at least one residential house or a flat. Fortunately, under the Income Tax Act, a deduction up to ` 1,50,000 is avilable in respect of interest on borrowed funds for purchase or construction of a residential house. Thus, one’s own savings coupled with borrowed funds from banks and other financial institutions should enable the person concerned to own a house in due course. Further, even the repayment of the loan is deductible under Section 80C of the I.T. Act. Thus, a good deal of tax saving is possible by planning to utilize savings and borrowed funds. He can also save a good deal of income tax.

A Trust for Personal Deity
If a person believes in some God, he can have a trust for one’s own deity and keep on investing the savings through the trust in safe funds like units of mutual funds, bank fixed deposits, immovable property, etc. This would enable him in course of time to spend on personal deity, bhandhara and other such personal religious functions without being required to spend out of his tax saved money. This would also enable the person to enjoy a separate exemption limit of ` 2,00,000 for one’s personal deity.

Invest in Life Insurance Policy

Every one should have a life insurance policy so that at the time of retirement sufficient money is available to help the person to have the funds for the marriage of daughter or for investment in jewellery or for higher education of children, etc. As far as possible, an endowment policy without profit would be an ideal investment of savings which would enable the person to save income tax within the overall limit of ` 1,00,000 under the different provisions of Section 80C of the I.T. Act.

Contributions to Public Provident Fund
It is absolutely necessary for a person to make investment in 15-year public provident fund. The maximum amount that can be invested is ` 1,00,000 which would enable the person to get income tax deduction within the overall limit of ` 1,00,000 under Section 80C. Further, the interest on PPF of 8% per annum or more is completely exempt from income tax under Section 10 of the I.T. Act. Besides, the accumulated amount on the maturity of the PPF is also not liable to any tax at present.

Tax Free Savings
If one has sufficient money to invest in the bonds and market securities, then mutual fund investment would be very good as the return on mutual fund is completely exempt from income tax. Likewise, if some one has good knowledge of the share capital market, then one can invest in good company shares, the dividend from which is also exempt from income tax. Investments can also be made in tax free Infrastructure Bonds.

Drafting of a Will

I would recommend every person particularly above the age of 40 years to have a properly drafted Will through which he can bequeathhis property to the persons as he likes. While drafting such a Will, care should be taken to see that maximum advantage is taken of the benefit of a separate income tax file in the name of the estate of the testator under Section 168 of the Income Tax Act. Similarly, only one discretionary trust can be created through the Will for making provision for marriage, medical expenses, etc. of the members of the family and future children and grand children to be born for spending at the discretion of the executor of the Will. This would also enable the family to have a separate income tax file with separate exemption limit of ` 2,00,000 after the demise of the testator.
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