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Budget FY2024-25: Know The Tax Advantage Of Pension, Annuity Plans In Retirement Planning

Tax exemptions on pension and annuity products and term life insurance plans incentivise taxpayers to save for retirement, so enhancing the tax benefits will encourage more people to do so, says an expert.

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Outlook Money
January 22, 2024
Budget 2024-2025

Budget 2024-2025

Tax Advantage Of Pension and annuity products and term life insurance plans encourage people to save money and get insurance coverage for retirement and are critical incentives to keep saving. Tax exemptions up to Rs 1.5 lakh in a financial year are allowed under Section 80C of the Income-tax Act, 1961, for premiums paid on a pension, annuity, or term insurance plan.

Some experts believe increasing the tax benefits will lead to increased retirement savings and expanded insurance coverage as it will incentivize more people to join the bandwagon.

These expectations are not without some basis, given that many Indians don’t save enough for post-retirement life. The stakeholders in the pension sector will pay close attention to what the government has to offer in its interim budget for FY2024-25 on February 1.

Also Read: Retirement Savings Should Have A Defined Benefit And Contribution Approach: Anup Bagchi

Retirement Savings And Expanding Insurance Coverage

Prashant Tripathy, MD and CEO of Max Life Insurance says, “There remains a huge gap between the funds available and the funds needed for retirement. To help close this gap, it is proposed to consider extending the Rs. 50,000 tax exemption for the National Pension Scheme (System) under Section 80CCD (1B) to pension and annuity plans of insurance companies that will provide a more level-playing field for such products and encourage increased investments.”

Tripathy also believes that setting a GST rate of zero per cent for pension and annuity plans “will help lessen the tax load for people receiving pensions and thus enhance financial security”.

Additionally, people who want to invest in more than one or two savings and insurance products may find the benefits under Section 80C limited and will have to sacrifice one for the other.

Tripathy says introducing a separate tax deduction limit for term plans under the old tax regime will allow more people to get insurance coverage. Currently, Section 80C covers many tax-saving products like the Public Provident Fund (PPF), Sukanya Samriddhi Scheme, Equity-Linked Savings Schemes (ELSS), etc., with an upper limit of Rs 1.5 lakh annually. Likewise, he says a deduction for term plans under the new tax regime will make life insurance more financially appealing, encourage responsible financial behaviors, and ensure financial security.

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