No salary after retirement? These incomes are taxable

Retirement signifies the termination of a regular salary, yet it does not signal the end of tax obligations. Pension payouts, interest from fixed deposits, rental income, dividends, and capital gains can still be subject to taxation after one's working years come to an end. Understanding which incomes remain taxable and which are exempt can aid retirees in circumventing unnecessary tax burdens and reporting errors.

Retirees should not assume that their tax liability diminishes significantly or vanishes once they cease earning a salary. In reality, retirement alters the nature of income, but it does not automatically render all earnings tax-free. The taxability of a retiree's income hinges on several factors such as the nature of the income, its source, the retiree's residential status, the chosen tax regime, and any applicable exemptions or tax deductions under the Income-tax Act.

To assist retirees in managing their tax obligations efficiently, financial advisors recommend categorizing their income streams into three categories: recurring taxable income, one-time retirement benefits that may be partially or fully exempt, and investment income earned post-retirement. By classifying their income this way, retirees can avoid under-reporting and plan their taxes more effectively.

Among the various sources of income that remain taxable even after retirement are uncommuted pension payments, interest earned on savings accounts, fixed deposits, recurring deposits, post office deposits, and the Senior Citizens' Savings Scheme. These interests are generally subject to taxation. Similarly, rental income from residential properties, whether residential or commercial, is taxable after deductions for the standard deduction of 30% and any other eligible deductions like home loan interest.

Capital gains from the sale of assets such as shares, mutual funds, immovable property, or other capital assets are also taxable based on the type of asset, the duration of holding, and the applicable capital gains provisions. Retirees must exercise caution when reporting these transactions in their Income Tax Return (ITR), especially when redeeming mutual funds, switching schemes, selling listed shares, or selling real estate, as these activities are typically reported in the Annual Information Statement.

Additionally, pension or annuity payments received from insurance companies are generally taxable in the year they are received. Dividends earned on shares are also taxable in the hands of the shareholder. Several other often-overlooked income sources can also be taxable, including interest accrued on cumulative fixed deposits, interest on income-tax refunds, family pensions received by a spouse or legal heir, income from consultancy or part-time professional assignments, taxable withdrawals from certain investment products, and gains arising from the switch or redemption of mutual funds.

Furthermore, retirees should be aware of notional rental income where they own more than one property beyond what the law allows.

It is important to note that merely filing Form 15H can prevent tax deduction at source (TDS) from fixed deposits and other deposits under certain conditions. However, this form does not exempt the income from taxation. Form 15H is only applicable if the total income remains below the specified threshold, which varies depending on the tax regime chosen.

For instance, individuals earning below Rs 12 lakh under the new tax regime or below Rs 5 lakh under the old tax regime can submit Form 15H to avoid TDS. Despite this, it is still mandatory for such individuals to file their ITR to claim enhanced Section 87A tax rebate, if eligible.