Kolkata: There are millions of pensioners in India. Pension income is subject to income tax in this country. However, not all types of pension is taxed. Whether pension will be taxed depends on the type of pension. The type of pension that retirees get in India in their bank accounts every month are not exempt from income tax. However, the income tax slabs, rates and rebates are no different from those applicable to salary earners. So one way of looking at it is just like taxes on salary income. These are called regular pensions. But lump sum amounts or commuted pensions can be exempt — fully or partially — depending on the taxpayer’s employment type and eligibility under income tax rules. Let’s have a closer look.
Types of pension
Pensions can be of different types. One, the retired employee gets a monthly payment every month. Twp, after the death of the retired individual, the spouse can get the pension and it is called family pension. Pension can be a ump sum like commuted pension. One has to know the rules clearly. A commuted pension refers to a lump sum payment that a pensioner gets in exchange of a portion of his/her future monthly pension amount. It often helps in paying off like debt on retirement or making some investment (like say in SCSS or Senior Citizen Savings Scheme). But opting for a commuted pension reduces the monthly pension permanently.
Disclosing pension in Income Tax Returns
While filing ITR (Income Tax Return), one should take care to mention it under the appropriate head. This is ‘Salaries’. This is uncommuted pension, is treated in the same manner as salary income (during the working life of the retiree). Here comes the most important point. Commuted pension is not subject to income tax according to section 10(10A) of the Income-tax Act.
Experts point out that if one receives family pension (after the death of the employee) is taxable under the head ‘Income from Other Sources’, says the website of the Income Tax Department.
Uncommuted pension: Exemption is available for disabled personnel of the armed forces. This is a special exemption. The entire disability pension is fully exempt from income tax. It applies when the individual has suffered physical disability caused by military service. But if one has superannuated, this exemption is not given. The point to note is disability pension is exempt from tax and it should not be included in salary income for TDS.
Commuted pension: Commuted pension for any retiree attract income tax. If the retiree is from a sector that is not government, whether the commuted value is taxable depends on whether the retiree also got gratuity at retirement. If he/she got gratuity, one-third of the value of the commuted pension is tax-free. In he/she does not get gratuity, 50% of the commuted pension is taxed.
Family pension: Income tax deduction is allowed for family pension. This deduction is equal to one-third of the pension or Rs 15,000, whichever is lower. This limit is raised to Rs 25,000 if the family member’s income is calculated under the new tax regime and under section 115BAC of the Income Tax Act.