You can buy annuity for a particular amount which will provide life- long annuity
I am 58 years old working in private sector, and will be retiring shortly. Kindly advise what will be the best mode of investment for provident fund (PF), gratuity, etc., which is Rs 75 to 80 lakh approximately, in order to get income of about Rs 35,000 to 40,000 per month regularly. The risk involved should be least and with guaranteed income. Secondly, I own a flat in Navi Mumbai, and wish to sell this flat as I plan to settle in Bengaluru, Karnataka. The flat’s cost may be in the range of Rs 75-80 lakh, whereas my flat in Navi Mumbai may fetch me approximately Rs 1.4 crore. What are the tax implications? I also own a plot at another location in Karnataka, so, would it be possible to avail the tax benefits if I construct a house on this plot?
-S R Ayodhya
Let me answer the second question first. The date of acquisition and the cost of acquisition for the Navi Mumbai flat will be needed to calculate long-term capital gains tax (LTCG) on its sale (assuming you have held it for at least two years as on date). If you had acquired the flat before April 1, 2001, the fair market value as on April 1, 2001 will also be needed to calculate LTCG. Also, if you have incurred any costs on making improvements to the flat, these can also be claimed as deduction after indexation. If the cost of construction of the house on the plot of Karnataka exceeds the amount of LTCG as calculated above, or if the cost of the house in Bangalore exceeds the LTCG as calculated above, no tax will be payable on LTCG provided the construction of the house or the purchase of the house, in either case, is within two years of the sale of the Navi Mumbai flat. Its sale should leave you with additional corpus to be added to the retirement kitty of Rs 75 to 80 lakh already indicated by you.
Now, lets turn to the first question on “best mode” of retirement for your kitty. Firstly, you are only 58 years old, so, you have to provide for your retirement kitty to pay for at least 27 years till you reach the age of 85 years. That is assuming your spouse is around the same age as you. If not, you will need to provide for a few years more till she reaches the age of 85 years. You have mentioned “risk involved should be least”. I presume that means you need returns that do not vary from year to year. The only instrument which can fulfill that need is an immediate gratuity plan. For example, in LIC Jeevan Akshay VI, if you invest Rs 63 lakh now, you will receive approximately Rs 40,000 per month as guaranteed pension as long as you live and your spouse will get the same amount as long as she lives after you.
However, the amount is fixed at Rs 40,000 for all time to come even though inflation will continue. Assuming inflation at 6%, then in 1937 (20 years from now) the Rs 40,000 pension that you get will be worth only Rs 12,500 in today’s money which means you will run short for your living expenses. The best way therefore is to do a mix of various options. You can buy annuity for a particular amount (say Rs 30 lakhs) which will provide life long annuity of Rs 19,000 per month and invest Rs 18 lakh in senior citizen saving scheme (interest rate is 8.30% p.a.) within one month of your retirement which will give interest of approximately Rs 37,000 per quarter. You can invest the balance amount in good equity saving schemes which invest around 25%-30% in equity and the balance in a mixed of arbitrage/debt funds. You can withdraw the balance requirements from such schemes on a monthly or quarterly basis. This will allow you to create room for neutralising inflation. If you are able to get over your hankering for “least risk”, you can consider increasing the exposure to equity savings schemes at the cost of the immediate annuity scheme. You can look at HDFC Equity Saving Scheme, Kotak Equity Saving Scheme, ICICI Prudential Equity Income Fund, or SBI Equity Saving Scheme.
CHOOSE WISELY
- You can buy annuity for a particular amount which will provide life- long annuity
- Annuity will invest in senior citizen saving scheme within one month of retirement
- You can invest the balance amount in good equity saving schemes to enjoy healthy returns
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