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Pension is taxable under the head salaries in your income tax return. Pensions are paid out periodically, generally every month. However, you may also choose to receive your pension as a lump sum (also called commuted pension) instead of a periodical payment.
It has been proposed to exempt senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.
Generally, the employer and taxpayer contribute together to an annuity fund, which pays the taxpayer pension out of the fund. At the time of retirement, you may choose to receive a certain percentage of your pension in advance. Such pension received in advance is called commuted pension. For example, at the age of 60 years, you decide to receive 10% of your monthly pension in advance for the next 10 years worth Rs 10,000. This will be paid to you as a lump sum. Therefore, 10% of Rs 10000x12x10 = Rs 1,20,000 is your commuted pension. You will continue to receive Rs 9,000 (your uncommuted pension) for the next 10 years until you are 70 and post 70 years of age, you will be paid your full pension of Rs 10,000.
How to report pension income and employer details in the income tax return?
Pension received by a family member is taxed under the head ‘income from other sources’ in family member’s income tax return.
For example – If a family member receives a pension of Rs 1,00,000, the exemption available is least of – Rs 15,000 or Rs 33,333 (1/3rd of Rs 1,00,000).
Thus the taxable family pension will beRs.85,000 (Rs 1,00,000 – Rs 15,000)
Pensions that are received from UNO by its employees or their family is exempt from tax. Pension received by family members of armed forces is also exempt.
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Pension income gets taxed as income from salary.
You can claim the standard deduction given for salary income on pension income taxed as income from salaries.
You will receive Form 16 from your former employer or the bank making the remittance.
You need to file a return if your annual pension income exceeds Rs 2.5 lakh. In case of senior citizens of the age of 60 or above, the limit is Rs 3 lakh. And, in the case of super senior citizens of the age of 80 and above, the limit is Rs 5 lakh.