One of the draconian laws in this country (thank God for tardy implementation!!!) is the tax on your retirement products. Please read this carefully, it has huge implications for you.
1. When you take up a job you start saving a part of your income in a provident fund. This is mostly compulsory..but some companies (which are too small, too rich, or too unsure of its long term existence) do not have any provident fund.
2. Your employer also contributes to the fund…and the fund grows at about 8% per annum…and could be a nice round sum when you retire.
3. Your friendly neighborhood ‘LiC uncle’ sells you a LIC Pension plan and you start saving Rs. 12,000 a quarter…so about Rs. 50k a year.
Very good. Now what happens when you withdraw the money?
Well, well when the money comes to you it is TAXED. At the full rates.
Suppose you have bought a regular pension plan (a classic pension plan as it is called)….YOU CANNOT WITHDRAW IT. PERIOD. You just cannot withdraw it. Even if you were on fire and you needed the money, you cannot withdraw it. AFTER ALL IT WAS CLEARLY for your retirement, right?
What happened if you bought a ULIP? (Damn Subra who listens to him anyway?)….the RM / IFA tells you ‘sir you can withdraw it when you wish” – well that is how the PRODUCT IS DEFINED.
What happened is that the RM forgot to tell you that it is taxable. Sorry. He did not know.
I have told this to a million people, and NOBODY, nobody thought this is a GREAT PIECE OF ADVICE. Believe me, it is. You owe me a big huge fee for telling you about this. It has saved you tons of money. Of course I know people who did not understand this ….and still went and bought pension plans. God save them.
What happens if you have money in Provident fund…and you wish to withdraw the same…?
Well there is now a funny provision saying “if you withdraw your Provident fund BEFORE 5 years of service, the amount will be included in your current income and be taxed accordingly. To ensure that this happens, there is a TDS introduced to ensure..that this provision is adhered to….
Post Footer automatically generated by Add Post Footer Plugin for wordpress.