Retirement Tax Guide
Section 80C: the ₹1.5 lakh umbrella
Section 80C (old tax regime only) lets you deduct up to ₹1.5 lakh/year from taxable income across a wide list of instruments: EPF, PPF, ELSS, life insurance premiums, principal repayment on a home loan, 5-year tax-saving FDs, NSC, and more. It's a shared ₹1.5 lakh cap across all of these combined, not per instrument — so if your EPF contribution alone already uses most of it, adding ELSS or a tax-saving FD on top adds little further deduction. Worth checking which of your existing EPF/insurance/home-loan payments already fill this bucket before buying something new purely for the tax break.
Section 80CCD: NPS's extra deductions
NPS gets three separate deduction sections. 80CCD(1) is your own contribution, counted inside the same ₹1.5 lakh 80C umbrella above (not additional). 80CCD(1B) is an extra ₹50,000 deduction exclusive to NPS, on top of the 80C cap — this is the reason NPS is often recommended even after 80C is otherwise full. 80CCD(2) is your employer's NPS contribution (up to 10-14% of basic salary depending on employer type), which is deductible outside the 80C cap entirely and, unlike the other two, is available even under the new tax regime.
LTCG tax on equity and mutual funds
Long-term capital gains (LTCG) on equity shares and equity mutual funds — held over 1 year — are taxed at a preferential rate with an annual exemption threshold, both of which the government has revised more than once in recent years. Rather than quoting a rate here that may already be out of date by the time you read this, check the current LTCG rate and exemption limit before relying on it for planning — the mechanism (a lower rate than your slab, with an annual tax-free allowance) is what stays consistent even as the exact numbers change.
Tax-loss harvesting
If some of your equity or mutual fund holdings are sitting at a loss, selling them books a capital loss you can offset against capital gains elsewhere in the same financial year — reducing your overall tax bill. Unused losses can be carried forward up to 8 assessment years. India doesn't have an explicit "wash sale" rule (US-style) banning immediate repurchase, but selling and instantly rebuying the same fund defeats the point if you're trying to stay invested — most people harvest losses in a genuinely underperforming holding they'd want to exit anyway, or briefly swap into a similar (not identical) fund to stay invested while booking the loss.
Passive income in retirement — and how it's taxed
Once you stop drawing a salary, retirement income typically comes from several sources at once: SWP withdrawals (only the gains portion taxed, per fund type and holding period), SCSS/POMIS interest (fully taxable at slab rate), EPF/PPF withdrawal (tax-free if rules are followed), and NPS annuity income (taxed as regular income when received). Because each source is taxed differently, the order and mix you draw from can materially change your effective tax rate in a given year — worth sequencing withdrawals deliberately rather than drawing from whichever account is easiest to access.
Try the planner
See how this concept fits your own retirement plan.
Retirement Planner | All Retireopedia terms