prpri Exemption towards commuted value of pension Section 10(10A) Exemption towards commuted value of pension Section 10(10A)

Provisions of section 10(10A) provide exemption towards the commuted value of a pension. Under the present article, we would understand the exemption available under section 10(10A) of the Income Tax Act. However, before understanding the exemption, it is important to understand the term ‘commuted pension’ and ‘uncommuted pension’ which is explained hereunder:

Simply putting up, the pension is the amount received by the employee after retirement. Based on the type of payment, the pension can be divided into the following two parts-

1. Commuted pension – lump sum payment received, in lieu of the periodic pension; and

2. Uncommuted pension – periodic pension received (monthly, quarterly or annually).

The pension so received would be taxable under the head ‘Salary’. Further, in case the family pension is received (after the death of the employee) by the legal heir, the same would be taxable under the head ‘Income from other sources’.

It is important to note here that the uncommuted value of pension is fully taxable for all the types of employees under the Income Tax. However, exemption towards a commuted pension is available under section 10(10A) of the Income Tax Act.

pension

Exemption available under section 10(10A) of the Income Tax Act

The commuted pension received is exempted under section 10(10A) in the following manner-

1. The commuted value of pension received by the government employees (listed below) are fully exempted under section 10(10A)

  • Employees of the central government.
  • Employees of state government.
  • Employees of the local authority.
  • Employees of a statutory corporation.

2. The commuted value of pension received by any other employees would be exempted in the following manner-

Particulars Amount of exemption
Cases, wherein, the employees receive any gratuity. The commuted value of 1/3rd of the pension which the employee is normally entitled to receive.
In any other case. The commuted value of 1/2 of the pension which the employee is normally entitled to receive.

3. The commuted pension received from the pension funds [referred under section 10(23AAB)] set up by the Life Insurance Corporation or any other insurer are fully exempt.

Table – Articles on Section 10 Exemptions

Sr. No. Particulars
1 Section 10(1)– Exemption to Agricultural Income
2 Section 10(2) Exemption to amount received by co-parcener from HUF
3 Section 10(2A) Exemption towards share of income from firm/LLP
4 Exemptions towards interest to non-residents | Section 10(4) & 10(4B)
5 Exemption on Tax paid by Govt or Indian concern on certain income of a foreign company
6 Section 10(7) Perquisites/allowances exemption to Govt employees serving outside India
7 Exemption- Section 10(8A) & section 10(8B) of Income Tax Act
8 Exemption towards commuted value of pension Section 10(10A)
9 Exemption towards retrenchment compensation received by workman Section 10(10B)
10 Section 10(10BC) Exemption towards compensation received on account of any disaster
11 Section 10(10C) Exemption of amount received on voluntary retirement
12 Exemption towards tax paid by employer on non-monetary perquisites: Section 10(10CC)
13 Section 10(10D) Exemption towards amount received under a Life Insurance Policy
14 Exemption for amount received from Statutory & Recognized PF
15 Exemption for payment from approved superannuation fund Section 10(13)
16 Income Tax Exemption on prescribed allowances/ benefits | Section 10(14)
17 Section 10(15) Exemption- Interest on Bonds, Debentures, Securities
18 Scholarship exemption | Section 10(16) | Income Tax Act 1961
19 Exemption towards income for administration of Charitable or Religious Institution
20 Section 10(32) Exemption | Income of minor clubbed with parent
21 Exemption for dividend income received from Indian Company | Section 10(34)
22 Section 10(34A) Exemption towards income received by a shareholder on buy back of shares
23 Section 10(35) Exemption towards income received from units
24 Section 10(37) Exemption towards Capital Gain arising on Compulsory Acquisition of Urban Agricultural Land

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4 Comments

  1. Ratan Bhattacharya says:

    I retired as a bank employee in Dec,2018. As per XI bipartite my pension reduced due to D.A. rates decreased(from 0.10 to 0.07 per slab). So excess pension paid during the period from 1st Jan, 2019 to 31 st Mar,2021 amounting to Rs. 70000/-(approx) was recovered from the incremental commutation of pension amt. But it was not reflected in Form-26 by the bank for the F y.2020-21. So I have to pay inc.tax on the said amt. Is this right procedure? If not how can I adjust the recovery amt. with my pension income this year?

  2. Vijay Kumar soni says:

    I was retired from lic .Now want to know that pl encashment is taxable or not .If taxable then what amount. Please reply

  3. Rakesh kumar Dhand says:

    I retired as a banker in July 2020
    Alongwith gratuity I received Rs. 9.20 lac as leave encashment and Rs. 11.74 lac as commuted value of pension. Pls guide as to how my above incomes for FY 2020-21 will be taxable and what portion of these can be exempt .

    Also during the FY 2021-22 I am likely to receive estimated amount of arrears of commuted value of pension amounting to Rs. 7.00 lac as revised salary / pension. Pls guide also about tax applicability and exemption for the commuted value to be received in current FY .

    Regards

  4. Surinder Tickoo says:

    Dear Sir,
    Your explanation regarding various exemptions under sec 10 of income tax are very helpful. I request you if you can please clarify/ guide me that a PSU insurance employee who got 1/3rd. of commuting value of pension say Rs.14 lakh. Is this whole commuting value of pension amounting to Rs.14 lakh is tax exempted under sec. 10 (10A).
    Kindly advise at the earliest on priority.
    Hope, you will not disappoint me.
    Thanks and regards!

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