Income Tax on Pension Income

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Pension is taxable under the head, “Income earned from salaries.”Generally pension is received after retirement by employee but can also be en-cashed while earning income.

Commuted pension

Commuted pension refers to lump sum amount received.

For a government employee, commuted pension is fully exempt.

For a non-government employee, it is partially exempt.

If Gratuity is also received with pension – 1/3rd of the amount of pension that would have been received if 100% of the pension was commuted is exempt from commuted pension and remaining is taxed as salary. And in case only pension is received, gratuity is not received – ½ of the amount of pension that would have been received if 100% of the pension was commuted, is exempt.

 

 Uncommuted Pension

Uncommuted pension refers to pension received periodically. Any amount received as uncommuted pension is fully taxable under the head of salaries. Irrespective of it received by the Government or non-government employees.

 

Any income received from UNO as pension is non-taxable, as it is the income received from armed forces. Also, if a family member is entitled to receive pension from UNO, then that income is also exempt from tax.

 

Note

From financial year 2018-19, there is a standard deduction of Rs. 40000/- that can also be claimed under pension as it is a part of income under heads of salaries.

 

Family Pension

Pension received by a family member is taxed under income from other sources in your Income Tax Return. If this pension is commuted or is a lump sum payment it is not taxable. Uncommuted pension received by a family member is exempt to a certain extent. Rs 15,000 or 1/3rd of the uncommuted pension received whichever is less is exempt from tax.

TDS on Pension

TDS is required to be deducted by employers on pension. As it is taxable under the head “Income earned from salaries.”

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