Updated on: Mar 29th, 2024
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8 min read
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.
Latest Update
Budget 2023:
Standard Deduction on family pension under the new tax regime is allowed: Rs 15,000 or 1/3rd of the pension amount, whichever is lower.
Budget 2022:
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 choose to receive 10% of your monthly pension worth Rs 10,000 of the next 10 years in advance. This will be paid to you as a lump sum.
Therefore, 10% of Rs 10,000x12x10 = Rs 1,20,000 is your commuted pension. You will receive Rs 9,000 (your uncommuted pension) for the next 10 years until you are 70 and after 70 years of age, you will be paid full pension of Rs 10,000.
Uncommuted pension is the pension received as periodic payments, usually monthly.
Note: Exemption in respect of commuted pension is available under both the tax regimes.
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 be Rs.85,000 (Rs 1,00,000 – Rs 15,000)
Pensions received from UNO by its employees or their family is exempt from tax. Pension received by family members of the armed forces is also exempt.
If you have any questions related to tax on pension, reach out to us at support@cleartax.in and we will assist you.
Income | 60-80 years | 80 years & above |
Upto Rs. 3,00,000 | Nil | Nil |
Rs.3,00,000 to Rs.5,00,000 | 5% | Nil |
Rs.5,00,000 to Rs.10,00,000 | 20% | 20% |
Rs.10,00,001 and above | 30% | 30% |
Note: Income Tax Exemption limit is up to Rs. 3,00,000 for individuals aged above 60 years but below 80 years & up to Rs. 5,00,000 for individuals aged above 80 years.
Pension income is taxable and can be received periodically or as a lump sum. Different tax rules apply to commuted and uncommuted pensions. Exemptions and reporting requirements vary based on the type of pension and gratuity received. Family pension, including exemptions and tax treatment, is also explained. Pensions from organizations like the UN are generally tax-exempt. Tax slabs for individuals above 60 years are provided.