Why does one need pension plans? Everything you need to know.

Retirement is usually when people wish to indulge in activities they have not able to do like all their life, explore and travel the world. Also, growing age inflicts infirmities which one needs money to cure. All this is not possible to be carried without a proper retirement plan. Pension plans or retirement plans are one of the only ways to ensure you maintain a decent standard of living even when your income starts to recede.

Pension plans along with ensuring a steady source of income in your latter years, also allow you tax benefits on your income according to the provisions of the Income Tax Act, 1961.

Pension plans are devised in a way in which you invest regularly during the span of your career. You receive the labor of your investment in a lump sum at your retirement (commuted pension) in addition to returns in regular intervals (uncommuted pension). Pensions are taxed under the head Income from Salaries. Where, uncommuted pension is fully taxable, commuted pension is partially taxable for employees other than government employees depending upon the payment of gratuity. If gratuity has been paid, 1/3rd of the Total Commuted Value of the pension is exempt. If gratuity has not been paid, 2/3rd of the Total Commuted Value of the pension is exempt. For Government employees, commuted pension is completely exempt. Pension, however, paid during the term of employment, is fully taxable.

Deductions for contribution of pension is received under section 80CCC, 80CCD(1) and 80CCD(1B).

There are two types of pension schemes, i.e. Private and Government. Private Schemes are specifically devised by the employer. Whereas, government policies adhere to the plans under the National Pension Scheme which are extremely famous. Initially, government schemes were open to only Government employees, however later were made available for all citizens of India.

Pension schemes are a smart way out, highly recommended, it is considered to ensure a stress-free post-work life.

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