Perhaps one of the most ignored challenges after retirement is to manage your benefits. Ironically, you are anxious about everything else: the sharp fall in income, life without colleagues, lack of drive, and so on. But for obvious reasons, you are excited about the benefitsprovident fund, gratuity, leave encashment, superannuation fund, etc.

However, not all these returns are exempt from tax. So, it is important to distinguish the ones that are tax-free from those that are not. You should also be aware of ways to steer clear of such tax traps.

If you are a government employee, there can be a marked difference in the way your funds are taxed. There is tax exemption on certain receipts such as commuted pension, gratuity, leave encashment, etc.

Private sector employees are generally taxed on the basis of prescribed rules, says Suresh Surana, founder of RSM Astute Consulting, which offers specialised accounting and auditing services. Lets take a look at the taxable and tax-free benefits and learn how to reduce your burden.

Provident fund: It is completely tax-free. However, ensure that your office invests it in a recognised provident fund. Unrecognised provident funds have different tax structures compared with the recognised ones. Further, the employers contribution and interest credited to such funds are taxable as income in the year of receipt, says Surana.

When it comes to the Employee Provident Fund (EPF), the interest and amount paid at retirement are not tax-free if your employer had been contributing more than 12% of your salary to the account. Similarly, the interest credited in excess of 9.5% per annum is included in gross salary, says Ameet Patel, partner, Sudit K Parekh.

The benefits of working continuously for five years with an organisation are widely known. The payment of accumulated balance from a recognised provident fund (RPF) is taxable unless the employee has worked continuously with a firm for five years, says Sandeep Shanbhag, director at tax and investment advisory firm Wonderland Consultants.

However, if you know you are going to retire in less than five years of joining a new company, you can secure tax-free RPF on retirement by making sure you transfer the EPF account from the previous company to the current one. Gratuity: This is one corpus where government employees have an edge over others.

Gratuity is a lump-sum payment made by an employer for long and meritorious service rendered by an employee, says Surana. Any amount that the government employees receive is exempt from tax, but there is a cap for non-government staffers. For employees covered under the Payment of Gratuity Act, the cap is the least of the following: a) actual amount received b) 15 days salary for each year of service c) Rs 10 lakh.

The salary for 15 days is calculated by dividing your last drawn salary by 26, which is the maximum number of working days in a month, says Surana.

There could still be situations when you end up paying tax on gratuity. Any gratuity received by an employee who is covered under the Payment of Gratuity Act and has worked for less than five years is fully taxable, says Shanbhag. The clause, completion of the five years service is not applicable in the case of death or disablement of an employee. Also, employees who are not covered under the Act do not have to complete five years of service to get tax-free gratuity.

Superannuation fund: The amount received as superannuation is exempt from tax if it is paid on death, retirement, in lieu of or as annuity. Any commutation of pension is exempt up to one-third of the commuted value of pension, where the employee receives any gratuity and half of such value otherwise, says Shanbhag.

The interest that is accumulated on the superannuation fund is taxed under certain circumstances. This exemption is not available if the employee resigns, says Shanbhag.

The escape route in cases where the amount becomes taxable is to purchase SAF (state annuity fund)-related annuity without any commutation. If you dont do this, TDS (tax deducted at source) will be applicable on the average rate at which the employee was subject to during the preceding three years or during the period, if it is less than three years, when he was a member of the fund, notes Shanbhag. The rest of the amount is exempt from tax only if annuities are purchased from life insurance companies.