tax saving
While changing jobs, many employees have questions regarding superannuation, gratuity and retirement planning. Tax and investment experts have given answers to such questions, which can help common investors in taking right decisions.
Tax rules on superannuation and gratuity
If someone has about ₹ 24 lakh superannuation and ₹ 9 lakh gratuity deposited at the time of leaving the job or at the time of retirement. So will this amount be taxed? According to tax expert Amit Maheshwari, under Section 10(13) of the Income Tax Act, the superannuation amount received at the time of retirement is tax-free. But if the employee withdraws this amount before retirement, it will be added to his total income and will be taxed as per the slab. However, if this amount is transferred to the approved superannuation fund or NPS of the new company, then this transfer is considered tax-free.
In the case of gratuity, under Section 10(10), tax exemption is available up to a maximum of ₹ 20 lakh or 15 days’ salary for every year of service (whichever is less). Any amount more than this is taxable.
NPS good for tax saving
Another reader, who is 43 years old and invests in mutual funds, shares, NPS, ULIP, RD and FD, asked whether it is right to continue with NPS. Investment advisor Rushabh Desai says that NPS is useful in terms of tax saving. In the old tax system, an investor can avail exemption of up to ₹ 2 lakh. But in terms of returns and flexibility, equity mutual funds can be a better option than NPS.
Distance from ULIP and emphasis on equity investment
Experts believe that ULIP is neither ideal for investment nor for insurance. A better strategy is to keep insurance and investments separate. Considering the long term for retirement, a balanced investment in equity mutual funds can give better returns.
Clear message for investors
Experts’ opinion is clear that NPS is useful for tax saving, but for wealth creation, focusing on equity mutual funds can be more beneficial. Transferring funds instead of withdrawing them while changing jobs is also a wise move from tax point of view.