If you are over 50 years old and have still not planned your retirement, the Budget may prove to be in your favour.
The government is examining the proposal of coming out with differential tax benefit depending upon one's age.
Those above 50 who have not made any provision for pension are likely to get a higher tax benefit of Rs 50,000 under section 80 CCC of the Income Tax Act.
Currently individuals save a maximum of Rs 10,000 per annum towards their pension, which is in keep with the ceiling on the tax benefit under section 80 CCC.
The industry is pushing for hiking the tax benefit to Rs 35,000 per annum, which will provide a higher monthly pension on retirement.
"Only if an individual starts saving at the age of 20-25, will he get a monthly pension of Rs 12,000. Should he start from the age of 35, he would need to save Rs 45,000 per annum to retire on this monthly sum," said the CEO of a leading insurance company.
With possible changes in the tax benefit, the Indian pension system would move in tangent with the US 401K plan, and afford a higher monthly sum for retirees.
The tax structure today is skewed against pension savings and individuals thus cannot adequately provide for their retirement, said a senior insurance official.
Should a 45-year old individual start saving for his pension, he would end up with a monthly annuity of just Rs 1,500. He would need to save at least Rs 75,000 per annum at that stage if he were to retire on a monthly sum of Rs 12,000, said the chief actuary at a leading insurance company.
For the past two years the Insurance Regulatory and Development Authority and the insurance sector have been pushing to hike the tax benefit available under the Income Tax Act. This is in line with the Kelkar Committee recommendations.
The IRDA had last year submitted a draft report on pension reforms to a seven-member committee. The new government at the Centre is expected to look into the issue.
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