How to reduce tax on your retirement benefits

Perhaps one of the most ignored challenges after retirement is to manage your benefits. Ironically, you are anxious about everything else: the sharp fall in income, life without colleagues, lack of drive, and so on. But for obvious reasons, you are excited about the benefits-provident fund, gratuity, leave encashment, superannuation fund, etc.

However, not all these returns are exempt from tax. So, it is important to distinguish the ones that are tax-free from those that are not. You should also be aware of ways to steer clear of such tax 'traps'.

If you are a government employee, there can be a marked difference in the way your funds are taxed. "There is tax exemption on certain receipts such as commuted pension, gratuity, leave encashment, etc.

Private sector employees are generally taxed on the basis of prescribed rules, which offer specialised accounting and auditing services. Let's take a look at the taxable and tax-free benefits and learn how to reduce your burden.

Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but www.stockmarketindian.com does not warrant or guarantee their accuracy or date.
www.stockmarketindian.com takes no responsibility for any investment decisions based on recommendations provided on website.
Financial contents like Technical charts, historical charts and quotes are taken from NSE and Yahoo sites.
Note - All quotes are delayed by 15 minutes and unless specified.

Google Adsense Ads are posted on every page of the website so visitors clicking on Ads and going to those links and carrying any financial deal is not at all related to www.stockmarketindian.com and any financial deal should be done on their own sole responsibility.
Please read at www.stockmarketindian.com/disclaimer.php before using any material or advice given at www.stockmarketindian.com
Copyright © 2006-2012 StockMarketIndian.com. All Rights Reserved

Provident fund: It is completely tax-free. However, ensure that your office invests it in a recognised provident fund. "Unrecognised provident funds have different tax structures compared with the recognised ones. Further, the employer's contribution and interest credited to such funds are taxable as income in the year of receipt.

When it comes to the Employee Provident Fund (EPF), the interest and amount paid at retirement are not tax-free if your employer had been contributing more than 12% of your salary to the account. Similarly, the interest "credited in excess of 9.5% per annum is included in gross salary.

The benefits of working continuously for five years with an organisation are widely known. "The payment of accumulated balance from a recognised provident fund (RPF) is taxable unless the employee has worked continuously with a firm for five years.

However, if you know you are going to retire in less than five years of joining a new company, you can secure tax-free RPF on retirement by making sure you transfer the EPF account from the previous company to the current one. Gratuity: This is one corpus where government employees have an edge over others.