iCalculator™ IN: Annuity Plans

Annuity plans refer to savings for funding retirement expenses. By investing in an annuity plan, you can secure a regular source of income even after you stop working.

Annuity Plans in Detail

In India, traditionally Life Insurance Corporation of India (LIC) has been the largest provider of annuity plans. Apart from LIC, annuity plans are also available from other leading insurance providers like HDFC Life, SBI Life, ICICI Prudential, Max Life, etc.

Example: ICICI Prudential offers an Immediate Annuity plan. You can enter this plan by paying a lump sum amount. In return, the plan offers the option of monthly/quarterly/half-yearly or yearly annuity payments. The minimum age for entering the Immediate Annuity plan is 45 years.

Types of Annuity Plans

Your choice of annuity plan depends upon two key factors: your targeted income upon retirement, and whether you want an annuity for your spouse after your death. The different types of annuity plans are listed below.

Annuity for life provides a fixed amount of annuity until death at intervals determined by you -- monthly, quarterly, yearly, etc. Annuity for life will stop after your death.

Annuity for a guaranteed period pays a high annuity amount for certain guaranteed years. After the guaranteed period, annuity continues until death, but at a lower amount. For example, if you decide a guaranteed period of 10 years, you will get a high annuity for 10 years, and thereafter a lower amount until death.

Annuity with return of premium provides a fixed annuity until death. When you die, your nominees will receive the premium paid. The nominees can get the premium payments in parts or as a lump sum. Typically, the fixed annuity amount in this plan is low.

Annuity at an increasing rate is ideal for those who are worried about increases in living costs. Every year, the annuity amount increases at a fixed rate of 3-5% to factor in increased expenses.

Joint annuity is a plan for the buyer and their spouse. The buyer gets pension until death. After the buyers' death, the spouse continues to receive the same amount of pension. The buyer can set the amount payable for the spouse.

Tax benefits of Annuity Plans

Annuity payments of up to 150,000 per year can be deducted from taxable income. However, any annuity income received is fully taxable.

Example: If your taxable income is ₹900,000 and you pay annuity premium of ₹50,000 every year, your taxable income will reduce to ₹850,000. However, if you start receiving annuity of ₹30,000 every month upon retirement, this amount will be fully taxable.

Use our Indian Tax Calculator to see how annuity affects your tax payable.

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