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How can I generate regular income in a tax-efficient way?

Dhirendra Kumar sheds light on generating regular income during retirement

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I have recently retired and have a corpus of Rs 1 crore. In the absence of any other pension or income, what would be the most tax-efficient way to generate regular income from this corpus?
- Arup

For tax efficiency, invest in equity and try and derive your income from the same. The long-term capital gain on deriving income exceeding Rs 1 lakh from equity is taxed at a rate of 10 per cent. Further, if your cumulative income doesn't exceed Rs 5 lakh, then your income is tax-exempt anyway.

Most importantly, I would say that the main question is how much you should withdraw so that you don't run the risk of consuming your capital. I think you should not focus on saving taxes, as tax-saving comes later. Rather, first, focus on returns so that you are able to generate adequate returns. Further, you should be careful about your withdrawal rate so that you are not consuming all the returns from your investments. This will prevent your capital from going down in value. I would say that, with a corpus of Rs 1 crore at retirement, you can invest 60 per cent in equity, 40 per cent in fixed income and have a 6 per cent withdrawal rate, which means about Rs 50,000 a month.

This way, you will have enough for consumption and at the same time, you will be able to leave enough of the appreciation to support a higher income in the future. This is because your returns will be more than 6 per cent and this extra return will help build a higher capital. If your income requirement increases in about three-four years, you can easily support that with the appreciated capital.

In the process, you can't avoid taxes because everything is taxable now. So, your Rs 6 lakh income is all that you have. The only thing is that how you package it. Consider setting up withdrawal plans that will help you defer most of the tax liability. So, I would say that having a withdrawal from your fixed income and splitting your investment with your spouse may be helpful. This is because transferring a part of your assets to your spouse makes it two tax accounts.

There is no way you can avoid taxes. But splitting it across two people and deriving most of the gains in the form of capital gains instead of interest income are simple tricks. If you do this, your taxation will not exceed more than two-three per cent of your gains.