Almost every FIRE calculation you will find online, including the first version of ours, assumes your corpus is worth its face value. You need ₹4 crore, you build ₹4 crore, done. But ₹4 crore sitting in an equity fund is not ₹4 crore in your hand. Some of it belongs to the government and always did. You just have not been asked for it yet.
The bill is smaller than most people fear, and for a lot of Indian early retirees it can be brought close to zero, legally. Getting there needs decisions taken years before you quit, and one of the most useful rules works only if you use it every single year. Skip a year and that year is gone.
This is the consolidated version. Accumulation, exit, and the income years after. If you already know the rates and only want to know which account to empty first, that is a separate post on withdrawal sequencing.
Before you read on
Everything here is the position for FY 2026-27, built on the slab and capital gains structure introduced in the July 2024 and February 2025 Budgets. Indian tax rules change every February and sometimes mid-year. We are not chartered accountants and this is not tax advice. For anything involving a large redemption, an ESOP, or foreign assets, pay a CA. Cheapest ₹5,000 you will spend. One more thing: the Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbered almost everything. The rates did not change, the section numbers did. We have kept the old numbers here because that is still what people search for and what their CA says out loud.
The rates, in one table
Most of the confusion here comes from people carrying around rules that were repealed. Indexation on debt funds is gone. The 10% LTCG rate on equity is gone. The ₹1 lakh exemption is now ₹1.25 lakh. This is what actually applies.
| What you hold | Long term | Short term | Holding period |
|---|---|---|---|
| Equity MF, index funds, stocks | 12.5% above ₹1.25L/yr | 20% | 12 months |
| Equity ETFs, arbitrage funds | 12.5% above ₹1.25L/yr | 20% | 12 months |
| Debt MF bought on or after 1 Apr 2023 | Slab rate. No long-term treatment at all. | Not applicable | |
| Gold ETF or gold fund (post Apr 2023 units) | 12.5% after 24 months | Slab | 24 months |
| Physical gold, jewellery | 12.5%, no indexation | Slab | 24 months |
| Property | 12.5% flat, or 20% with indexation if bought before 23 Jul 2024 | Slab | 24 months |
| FDs, savings interest, RBI bonds | Slab rate, taxed every year whether you withdraw or not | Not applicable | |
| PPF | Tax free going in, growing, and coming out | 15 year lock-in | |
| EPF | Tax free after 5 years of continuous service, with two exceptions below | 5 years | |
| NPS, exit at 60 | Up to 60% lump sum tax free, at least 40% buys an annuity, annuity income at slab for life | Locked till 60 | |
| NPS, exit before 60 | Only 20% comes to you, 80% must buy an annuity | Allowed after 5 years | |
Read that table once more and notice its shape. Equity is the most lightly taxed thing an Indian retail investor can own, by a wide margin. Everything that feels safe - FDs, debt funds, annuities - is taxed at your slab. Everything that feels risky gets 12.5% with an annual exemption on top.
Nobody should read that as a case for putting the whole corpus in equity. Read it as a reason to notice that the tax code is already paying you to hold some.
The NPS line in that table, read properly
Two different rules, and the one that gets quoted is the one that does not apply to you. Exit at 60 and you can take up to 60% as a lump sum, tax free, with at least 40% going into an annuity. Exit before 60, which is the entire point of this website, and PFRDA allows you 20%. The other 80% is compulsorily annuitised.
The tax question people ask about that 20% has a boring answer. The exemption on closing an NPS account covers up to 60% of the corpus, so a 20% lump sum sits well inside it and comes to you tax free. The damage is on the other side. That 80% buys you an annuity at whatever rates insurers are quoting, roughly 6% today, and every rupee of it is taxed at your slab for the rest of your life. There is no exemption, no 12.5% rate, no ₹1.25 lakh shelter. It is the most heavily taxed income an Indian retiree can own, and you cannot undo the decision.
Below ₹2.5 lakh of corpus you can take the whole thing out on early exit. Above it, that 80:20 applies. Which is why NPS beyond the employer 80CCD(2) contribution is a hard sell for anyone planning to stop working at 45.
Which regime, if you are chasing FIRE
The new regime slabs, which is what almost everyone is defaulted into now:
| Income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Plus 4% cess on the tax. Standard deduction of ₹75,000 against salary. The 87A rebate wipes out tax up to ₹12 lakh of taxable income, so a salaried person on ₹12.75 lakh pays nothing at all.
The awkward part for a FIRE saver is that the new regime killed most of the deductions the FIRE playbook was built on. No 80C. No 80D for the health premium. No 80CCD(1B) for the extra ₹50,000 into NPS. No HRA. What survives is 80CCD(2), the employer NPS contribution, which is why that one line in your CTC suddenly matters more than it used to.
The rough rule
If your deductions add up to less than roughly ₹8 lakh, the new regime wins at nearly every income level. Most people cannot get close to ₹8 lakh without a large home loan interest component and a rented house in a metro at the same time. So run it once, and if you are like most people, stop thinking about the old regime and start choosing investments on their own merits instead of their 80C status.
There is a real consequence buried in that. Under the old regime, ELSS and PPF and NPS earned part of their place through the deduction. Take it away and PPF is a 7.1% tax-free bond with a 15 year lock-in, ELSS is an ordinary equity fund with a pointless three year lock-in, and NPS is an equity-debt mix you cannot touch till 60 that then forces you to annuitise 40%. Judged on their own merits, two of those three get much less attractive for someone planning to stop working at 45.
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The ₹1.25 lakh you can collect every year and probably do not
Long-term capital gains on equity are exempt up to ₹1.25 lakh per financial year, per person. It does not carry forward. On 1 April it resets, and last year's unused exemption is gone.
So use it. Every March, sell enough units to book about ₹1.25 lakh of long-term gain, pay zero tax on it, buy the same fund back the next day. Your holding is unchanged. Your cost basis has gone up by ₹1.25 lakh. Every rupee of gain you moved into the exempt bucket is a rupee that will never be taxed at 12.5% later.
Cost of doing this: one day out of the market, plus whatever exit load applies, which for most equity funds after a year is nil.
| Harvests every year | Never harvests | |
|---|---|---|
| Invested | ₹40,000/month for 20 years | ₹40,000/month for 20 years |
| Corpus at 12% | ₹3.99 crore | ₹3.99 crore |
| Gain moved into the exempt bucket | around ₹22 lakh | Nil |
| Tax saved at 12.5% | ₹2.75 lakh | ₹0 |
₹2.75 lakh for about twenty minutes of work a year. That is the conservative version too, because in the early years your gains are small and you cannot fill the full ₹1.25 lakh. And if you and your spouse both do it on folios held separately, it is two exemptions.
Things to get right
- Only units held over 12 months count. Each SIP instalment carries its own purchase date. A March 2026 harvest can only touch units bought before March 2025.
- Book the gain, not the redemption. If your fund has grown 60%, selling ₹3.3 lakh worth of units books roughly ₹1.25 lakh of gain. Sell ₹1.25 lakh worth and you have used about a third of your exemption.
- Not in a year you already booked large gains. The exemption applies once, across all your equity gains for the year. If you sold ESOPs in November it is already spent.
- ELSS units cannot be sold before three years. Every instalment locks separately.
After you quit: drawing ₹1 lakh a month and paying nothing
This is the part that surprises people, so take it slowly.
When you redeem an equity fund, only the gain is income. If you put in ₹60 lakh and it is now worth ₹1 crore, then 40 paise of every rupee you take out is capital gain and 60 paise is your own money coming back. Nobody taxes you for receiving your own money.
Now stack the two shelters. First, ₹1.25 lakh of long-term gain is exempt outright. Second, if you are a resident with no other income, the unused part of your basic exemption limit - ₹4 lakh under the new regime - can be set off against the remaining long-term gain. Roughly ₹5.25 lakh of gain, taxed at nothing.
| Step | Amount |
|---|---|
| Units redeemed during the year | ₹13,00,000 |
| Cost of those units (60% of value) | ₹7,80,000 |
| Long-term capital gain | ₹5,20,000 |
| Less: section 112A exemption (now section 198) | (₹1,25,000) |
| Taxable LTCG | ₹3,95,000 |
| Less: unused basic exemption limit | (₹3,95,000) |
| Tax payable | Nil |
₹13 lakh a year. ₹1,08,333 a month. Zero tax, entirely inside the rules, no HUF, no trust, no offshore anything. If your spouse holds a corpus in their own name and does the same, the household number is ₹26 lakh a year tax free, which is a comfortable life almost anywhere in India outside south Bombay.
One caveat, and it matters. That 60:40 cost-to-gain split holds early in retirement. Twenty years in, the same fund might be 80% gain and 20% cost, and an identical ₹13 lakh redemption now books ₹10.4 lakh of gain instead of ₹5.2 lakh. Your tax-free ceiling falls as the corpus ages. Harvesting during accumulation is what keeps that ratio friendly, which is the second reason to bother with it.
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The rebate that does not do what you think
Somebody will tell you income up to ₹12 lakh is tax free now, so an early retiree drawing ₹12 lakh of gains pays nothing. That is wrong, and expensively so.
The section 87A rebate is not available against income taxed at special rates. Long-term capital gains under 112A, section 198 in the new Act, are taxed at a special rate. So the rebate cannot touch them. The basic exemption limit can be set off against LTCG, as above. The ₹12 lakh rebate cannot.
What that means for someone living purely off equity redemptions:
| Long-term gain booked in the year | What people assume | Actual tax |
|---|---|---|
| ₹5,25,000 | Nil | Nil |
| ₹8,00,000 | Nil | ₹35,750 |
| ₹12,00,000 | Nil | ₹87,750 |
The ₹12 lakh row is (12,00,000 minus 1,25,000 minus 4,00,000) × 12.5%, plus 4% cess. ₹87,750. Plan your year around ₹5.25 lakh of gains rather than ₹12 lakh, or a demand notice turns up eighteen months later when the money is spent.
Surcharge, and the one year it bites
Above ₹50 lakh of total income a surcharge gets added on top of the tax. 10% between ₹50 lakh and ₹1 crore, 15% above that. On capital gains under 111A and 112A the surcharge is capped at 15%, and the new regime caps the overall surcharge at 25%.
In a normal FIRE year this never comes near you. It matters in three situations, and all of them are one-off events people walk into without thinking:
- Selling a flat. A ₹1.4 crore sale with a ₹70 lakh gain puts you into surcharge territory in a year you probably also drew a salary.
- An ESOP or RSU liquidity event. The perquisite is salary income at slab and it stacks on top of everything else.
- Selling a big slug of the corpus in one go to fund something - a house, a business, a child's education abroad.
The fix in all three is the same and it is boring: split the transaction across two financial years where you can. Half in March, half in April. Nothing clever about it, and it can be worth several lakhs.
The EPF traps nobody mentions
EPF gets described as tax free and mostly it is. Two exceptions apply to exactly the sort of person who reads this site.
Interest on your own contribution above ₹2.5 lakh a year is taxable. That is a basic salary of roughly ₹1.74 lakh a month before you cross the line. Plenty of senior IT people are past it and have never once seen it reported anywhere. The excess sits in a separate taxable EPF account and its interest gets added to your income every year.
Interest after you stop contributing is taxable. Leave the balance with EPFO after resigning at 45 and it does keep earning 8.25% - EPFO credits interest on dormant accounts right up to age 58, the old rule about interest stopping after three idle years was reversed back in 2016 - but every rupee of that post-resignation interest is taxed at your slab. Which sounds bad, and mostly is not. More on that below, because it is the one place in this post where the arithmetic argues against the scary headline.
Separately: withdraw before five years of continuous service and the whole thing unwinds. Employer contribution and interest become salary income, your own contribution loses the 80C benefit you claimed on it, and those old returns get reopened.
So should you leave the EPF sitting there?
This is the question we get asked more than any other, and the answer needs two numbers rather than one. What the tax actually costs you in rupees. And what you would do with the money instead.
Start with the bill. Interest at 8.25%, taxed at your marginal slab plus 4% cess, on a balance you left behind when you resigned.
| EPF balance | Interest a year | Tax at 0% | at 5% | at 20% | at 30% |
|---|---|---|---|---|---|
| ₹10 lakh | ₹82,500 | Nil | ₹4,290 | ₹17,160 | ₹25,740 |
| ₹25 lakh | ₹2,06,250 | Nil | ₹10,725 | ₹42,900 | ₹64,350 |
| ₹50 lakh | ₹4,12,500 | Nil | ₹21,450 | ₹85,800 | ₹1,28,700 |
| ₹75 lakh | ₹6,18,750 | Nil | ₹32,175 | ₹1,28,700 | ₹1,93,050 |
| ₹1 crore | ₹8,25,000 | Nil | ₹42,900 | ₹1,71,600 | ₹2,57,400 |
The 30% column is what people picture when they panic and withdraw. But look at who is actually sitting in it. A 30% marginal rate needs taxable income above ₹24 lakh. Someone who resigned at 45 to live off a corpus is drawing ₹12 to ₹15 lakh a year, most of it capital coming back to them rather than income. A lot of early retirees land in the 0% and 5% columns, where the tax on a ₹50 lakh EPF balance is ₹21,450, or nothing.
Now the second number, which is the one that settles it. What does 8.25% taxed at slab leave you, against the safe things you would move it into?
| Your slab | EPF at 8.25%, post tax | Bank FD at 7%, post tax | Debt fund at 7%, post tax |
|---|---|---|---|
| Nil | 8.25% | 7.00% | 7.00% |
| 5% | 7.82% | 6.64% | 6.64% |
| 10% | 7.39% | 6.27% | 6.27% |
| 20% | 6.53% | 5.54% | 5.54% |
| 30% | 5.68% | 4.82% | 4.82% |
EPF wins every row. It wins at the 30% slab, where the taxable headline is supposed to hurt most. It wins because everything you would replace it with is taxed at the same slab and starts a full percentage point lower. Debt funds bought after April 2023 get no better rate, they only let you defer the tax until you redeem, and deferral on a 7% instrument is worth much less than 125 basis points of extra yield.
The short answer
Leave it. As the debt portion of your portfolio, an EPF balance earning 8.25% and taxed at slab is still the best safe rupee instrument available to an Indian retail investor, at every slab. Withdrawing it to park in an FD is a straight downgrade. Count it as debt in your asset allocation and hold correspondingly more equity elsewhere, rather than treating it as a problem to be solved.
Four things flip that answer, and the first one is the serious one.
It eats the exemption you were saving for capital gains. Go back to the ₹13 lakh withdrawal earlier in this post, where the unused ₹4 lakh basic exemption soaked up your long-term gains. EPF interest is ordinary income and it has first claim on that exemption. ₹4.12 lakh of interest on a ₹50 lakh balance consumes almost all of it, and your tax-free equity withdrawal falls from around ₹13 lakh to roughly ₹3 lakh. The interest itself is still untaxed. The shelter it used up was not free. Model the two together or the July after your first full retired year will be unpleasant.
Age 58. The account stops earning then, and nothing warns you. Retire at 45 and this is a fourteen year arrangement with a hard stop, not a permanent one.
The rate is set by a committee, every year. 8.25% is not contractual. It has drifted down over two decades and the EPFO board revisits it annually. You are holding an instrument whose yield can be cut by announcement.
Claim friction. An old account with a mismatched date of birth, an unlinked UAN, or a previous employer who has stopped answering email can take months to settle. If your plan needs that money in year three of retirement, test the claim process while you still have the patience for it.
One genuine uncertainty, which we would rather flag than paper over. Post-resignation EPF interest is generally treated as taxable each year as it accrues, and the tables above are built that way. Some people instead declare the whole accumulated lot in the year they finally withdraw. That bunches several years of interest into one and can push you into a higher slab, making the bill considerably worse than anything shown here. Ask your CA which position they are taking, then be consistent about it.
Six ways people lose money without meaning to
1. Switching funds is a sale. Moving from a regular plan to a direct plan, or between two schemes of the same AMC, is a redemption plus a fresh purchase. It triggers capital gains. People do this on a whim after reading about expense ratios and hand over tax they never needed to pay. If you must switch, do it in a year where your ₹1.25 lakh exemption is still unused.
2. IDCW instead of growth. The dividend option pays you out and the payout is taxed at slab. The growth option lets you choose when to realise, at 12.5%, with an exemption on top. There is no case where IDCW is better during accumulation. Check your old folios, a lot of 2015-era SIPs were sold with IDCW ticked and nobody ever went back.
3. Losses left on the table. Short-term capital loss sets off against both short and long-term gains. Long-term loss only against long-term gains. Either can be carried forward eight years, but only if you file the return by the due date. Miss the deadline in a bad market year and you have thrown away a shield worth eight years of use.
4. Advance tax, discovered in July. While salaried, TDS handled everything for you. The year you stop, nobody deducts anything and the liability is yours in four instalments. Capital gains do get relief - you only pay from the quarter in which the gain arose - but interest under 234B and 234C is real money, and this is the most common first-year mistake by a distance.
5. The wrong ITR form. Any capital gain means ITR-2. Freelance or consulting income on the side means ITR-3. Filing ITR-1 because that is what you always filed gets the return treated as defective. And if you hold foreign stock through an RSU plan or a US brokerage, Schedule FA is mandatory, and the penalty for skipping it has nothing to do with the amount involved.
6. Forgetting grandfathering. Equity bought before 31 January 2018 gets its cost stepped up to the NAV on that date. If you hold something that old and the broker statement has not applied it, you are volunteering tax on gains the law says are not taxable.
What all this does to your FIRE number
Go back to the ₹13 lakh example. Someone whose annual spend is under about ₹13 lakh, drawing from a well-harvested equity corpus held in two names, pays no tax at all. Their FIRE number needs no adjustment for tax.
Someone spending ₹30 lakh a year is somewhere else entirely. Their gains in a mature corpus might be ₹20 lakh, tax around ₹1.8 lakh after the exemptions, so roughly 6% of what they withdraw. To fund the same life they need about 6% more corpus. On a ₹9 crore target that is ₹55 lakh. Another eighteen months at the desk.
The adjustment we use
Add 5% to your corpus target if annual spend is above roughly ₹15 lakh. Below that, with two people harvesting properly, the tax drag is close enough to zero that a buffer for it just means working longer for no reason. Our calculators do not build this in on purpose - the number depends too heavily on your own cost basis, and we would rather you added it yourself knowing why.
The shelf life of everything above
Every number here assumes the rules stay put, and they will not. The LTCG rate went from nil to 10% to 12.5% inside eight years. Debt fund indexation vanished in one Budget with no transition for people who had built plans around it. Anyone planning a thirty-five year retirement on today's tax table is planning on sand, and should at least know it.
The defence is not prediction. It is spreading the corpus across instruments taxed in different ways so no single Budget can break the whole plan, and keeping the withdrawal low enough that a few percentage points either way does not decide whether you eat. Less satisfying than optimisation. Works better.
TL;DR
- Equity LTCG is 12.5% above ₹1.25 lakh a year. Debt funds bought after April 2023 sit at your slab. Everything that feels safe is taxed worse than equity.
- Harvest the ₹1.25 lakh exemption every March. It does not carry forward. Twenty years of it is worth around ₹2.75 lakh, and it keeps your cost basis high for the withdrawal years.
- A resident with no other income can book about ₹5.25 lakh of long-term gain tax free, which on a typical cost basis is a ₹13 lakh withdrawal. Two people, ₹26 lakh.
- The 87A rebate does not apply to capital gains. ₹12 lakh of gains costs ₹87,750, not nothing.
- EPF interest on contributions above ₹2.5 lakh a year is taxable, and so is all interest after you stop contributing. Leave the balance there anyway. At 8.25% taxed at slab it beats an FD or a debt fund at every slab. Just remember it eats the basic exemption you wanted for capital gains, and it stops earning at 58.
- Split large one-off sales across two financial years. Surcharge starts at ₹50 lakh.
- The year you quit, TDS stops and advance tax becomes your problem. Diarise 15 June, 15 September, 15 December, 15 March.
- Add 5% to your corpus target if you spend more than ₹15 lakh a year. Below that, do not bother.