Sir, I am a retired Air Force veteran aged 59 yrs. My annual pension for FY 2023- 24 is 8 lakhs, out of which i have ppf subscription of 1.5 lakhs, mutual fund sip annually of 1.56 lakhs. I pay home rent also @ Rs 16000 per month from my pension. I have a TDS from pension amounting to Rs 40000/- in 2023 - 24. This year due to maturity of KVP I have income from other sources of Rs 4.1+ 40000+ 50000= Rs 5 lakhs. I already have paid 40000 as TDS, am paying 40000/- as advanced tax by 26 Mar 24. How much extra will be my tax liability for 2023-24? How can i save tax, please advice as i have no home loan, no health insurance etc.

Ans: Currently, your taxable income without deduction comes to Rs 12 lakhs. Shares STCG and LTCG is not added to the income. These are separately taxed.

After deductions, the taxable income would be Rs 10 lakhs (if 80C and 80D is fully claimed. 80CCB comes under 80C).

In this case, you still have to pay tax. Your tax liability would be around Rs 1.1 lakhs.

 

Ans: Pensioner earning income upto Rs.7,50,000 will get 2 benefit as per Budget 2023 proposals. Rebate is available for 100% of tax amount and Rs.50000 standard deduction against pension income. Thus, new tax regime will be beneficial for NIL tax liability.

Ans: Your gross salary of Rs 11,15,652 per annum puts you in a comfortable financial position. With only six years left until retirement, planning for both tax efficiency and post-retirement income is crucial. You have already invested Rs 15 lakhs in LIC policies and FDs, along with a PO Recurring Deposit of Rs 8,500 per month. These are conservative investment options, which provide stability but may not be enough to meet your post-retirement income needs.

Evaluating Tax Regimes for 2024-25
Choosing between the old and new tax regimes depends on your existing deductions and exemptions. The old regime allows for deductions under Section 80C, 80D, and others, which can lower your taxable income. The new regime offers lower tax rates but eliminates most deductions.

Points to Consider:

Old Tax Regime: If you claim significant deductions like HRA, 80C (up to Rs 1.5 lakhs), and 80D (health insurance premiums), the old regime may be beneficial.

New Tax Regime: If you don’t have substantial deductions or prefer a simplified process, the new regime with lower rates could be advantageous.

Estimating Your Tax Liability
Without specific details on your deductions, a rough estimate of your tax liability under both regimes can be considered. Here's a basic idea:

Old Tax Regime:

Income after Standard Deduction: Rs 10,65,652 (assuming Rs 50,000 standard deduction)
Deductions: If you claim Rs 1.5 lakhs under 80C, your taxable income would be Rs 9,15,652.
New Tax Regime:

Taxable Income: Rs 10,65,652 without additional deductions.
Given these estimates, it’s essential to calculate the exact tax based on your actual deductions.

Post-Retirement Income Planning
You aim to have a regular income of Rs 25,000 per month after retirement. To achieve this, you need to consider both the amount required and the investment avenues that will help you reach your goal.

Current Investments:

LIC and FDs: These are safe but offer lower returns. While they provide security, they may not be sufficient to generate Rs 25,000 per month.
PO Recurring Deposit: A good disciplined saving habit, but again, the returns are limited.
Creating a Retirement Corpus
To generate Rs 25,000 per month, you’ll need a substantial corpus. Assuming a conservative withdrawal rate of 4% per annum, the required corpus would be approximately Rs 75 lakhs.

Steps to Take:

Increase Equity Exposure: Since your current investments are conservative, consider adding equity mutual funds to your portfolio. Equity can provide higher returns, which are crucial for building a larger retirement corpus.

Systematic Investment Plans (SIPs): Start SIPs in diversified equity mutual funds. This will allow you to benefit from rupee cost averaging and compounding over the next six years.

Balanced Approach: Consider a mix of equity and debt funds. While equity will drive growth, debt funds will add stability to your portfolio.

Disadvantages of Direct and Index Funds
When considering mutual funds, it’s important to understand the drawbacks of direct and index funds.

Direct Funds:

No Professional Guidance: Investing directly without a Certified Financial Planner's guidance can be risky. Regular funds offer professional management and support.

Complex Decision Making: Selecting the right funds, rebalancing, and timely switches require expertise.

Index Funds:

Limited Growth Potential: Index funds simply replicate the market. They don’t offer the opportunity to outperform, which is vital for long-term growth.

No Active Management: In changing market conditions, index funds can’t adapt, leading to missed opportunities.

Investing for Regular Post-Retirement Income
To achieve your goal of Rs 25,000 per month, you need to strategically invest the additional amount required.

Options to Consider:

Systematic Withdrawal Plan (SWP): Invest in a balanced fund and opt for an SWP. This will allow you to withdraw a fixed amount regularly while the remaining investment continues to grow.

Dividend-Paying Funds: Consider funds that provide regular dividends. Though not guaranteed, they can be a source of regular income.

Debt Funds: Allocate a portion to debt funds for stability. These funds can provide steady returns, adding a cushion to your income stream.

Final Insights
With six years left before retirement, focusing on building a balanced and growth-oriented portfolio is key. Increase your equity exposure through SIPs, consider the advantages of regular mutual funds over direct and index funds, and strategically plan for a regular income stream post-retirement. By carefully choosing your tax regime and aligning your investments with your retirement goals, you can achieve financial security in your golden years.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in