Tired of hefty taxes eating into your salary? What if you could build a ₹12 crore, largely tax-free retirement fund and pay zero income tax as a salaried professional? According to Sujit Bangar, founder of TaxBuddy.com, it’s not just a dream—it’s a achievable reality for those earning up to ₹14.65 lakh annually under India’s new tax regime.
The ₹12 Crore Tax-Free Retirement Blueprint
Bangar’s strategy, detailed in a popular LinkedIn post, hinges on a disciplined approach to two powerful financial instruments: the Employees’ Provident Fund (EPF) and the National Pension System (NPS).
Let’s break down how it works for someone starting at age 30 with a ₹75,000 monthly salary:
- Consistent Contributions: By contributing ₹12,500 each to EPF (including employer’s share) and NPS monthly, and assuming an 8% annual salary increase, your retirement corpus could swell significantly.
- EPF Power: With EPF currently offering 8.25% interest, your contributions (and employer’s share) can grow to ₹4.74 crore by age 60. The best part? The maturity amount is generally tax-free after five years of continuous service. You can even boost this further with Voluntary Provident Fund (VPF), contributing up to 100% of your basic salary.
- NPS Advantage: NPS, with its market-linked returns (historically 9-11%), could accumulate ₹7.42 crore. Upon retirement, a significant 60% of this corpus can be withdrawn tax-free, while the remaining 40% is converted into an annuity for a regular income stream.
The Zero-Tax Angle
Here’s where it gets exciting for your immediate finances: Under the new tax regime, employer contributions to EPF (up to 12% of basic salary) and NPS (up to 14% of basic salary) are exempt from your taxable income. This crucial provision is what allows salaried individuals earning up to ₹14.65 lakh to potentially pay zero income tax while their retirement savings compound robustly.
Smart Investing Strategies
Bangar suggests a dynamic approach:
- Early Career: Leverage VPF for its stable, fixed returns and opt for an aggressive equity allocation in NPS using the ‘Active’ choice.
- Approaching Retirement: Gradually shift your NPS corpus from equity to debt to protect your gains and reduce risk.
- Post-Retirement: Consider a Systematic Lump-sum Withdrawal (SLW) from your NPS to manage your post-retirement tax liability effectively.
Important Considerations
While this strategy offers immense benefits, it’s crucial to be aware of its limitations:
- Long-Term Commitment: Both EPF and NPS are designed for long-term retirement planning. They’re not suitable for short-term savings or emergency funds due to their liquidity constraints.
- NPS Annuity: Remember that 40% of your NPS corpus must be converted into an annuity, locking in that portion for life. The income generated from this annuity is taxable.
Bangar’s ultimate advice: “Use them as the backbone of your retirement.” However, always consult a financial planner before committing to any long-term strategy to ensure it aligns with your individual financial goals and risk tolerance.
Ready to explore how this strategy could work for your retirement?