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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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14 Comments

  1. Sayog says:

    I would like to know taxability on death benefits of Unit Linked Pension Plan holder. I read section 10(10A) however it doesn’t say anything clearly if the nominee is liable to pay tax on the amount received after the death of pension policy holder.
    If it would be taxable as per capital gain or inheritance tax, what would be the tax rate?

  2. Amit K Pal says:

    Are gratuity and commuted value of pension as fully exempt under sec 10(10) (I) and 10(10A) also available under new tax regime? is interest on deferred gratuity is taxable?

  3. Neha Purandare says:

    Dear Sir,

    My husband received commuted pension of Rs.18.50 lakhs who retired from State Govt Service, as a teacher, please guide me regarding taxability of the said amount, whether the whole amount is non taxable or not.

    Thanks and regards,

    1. Manoj dalimbkar says:

      Dear Sir, i received commuted pension of Rs.15.50 lakhs after i retired from bank Service, in April 22please guide me regarding taxability of the said amount, whether the whole amount is non taxable or not.

      Thanks and regards,

      1. Usha Ravindran says:

        I am a retired bank employee retired in April 2022. I received gratuity, EL encashment and commuted value of pension commuted 40% of the pension. In my Form 16 rebate against gratuity is reflected as Rs.2000000/-, rebate against EL encashment is shown as Rs.300000/-, but rebate against commuted value of pension is shown as “0”(Zero). I received Rs.1500000/- as commuted value of pension after commuting 40% of my pension. I want to know whether I can show a tax rebate of Rs.500000/- (1/3 rd of the commuted value of pension received), against ‘Commuted value of pension” in my Income tax return for the AY 2023-24. Please send the reply at the earliest at my e-mail address given

  4. एल एन तिवारी says:

    श्री मान जी मैं शिक्षक के पद से मध्यप्रदेश शासन शिक्षा विभाग से सेवानिवृत्त हुआ हूं मुझे अपनी पेंशन कम्यूटेशन कराने पर लगभग1158732रूपया प्राप्त हुआ जो 2021मेमिला क्या उस पर मुझे आयकर देना होगा
    यदि नहीं तो आयकर नियम की किस धारा से छूट प्राप्त होगी साथ ही यह भी बताया जावे रिटर्न फाइल में किस क़ पर उसे अंकित किया जावे

  5. ANAND JOG says:

    Sir, I took VRS in oct 2021 after 28 yrs of service & had received commutation of pension. My form 16 shows the full amount of commuted pension as exempted u/s 10(10A). So no tax is deducted on commuted pension. Still can I claim relief u/s 89 in form 10E. Please guide at the earliest.

  6. Supreetha says:

    Dear sir,
    Amount received from Lifestage Pension Policy of ICICI (paid in 2009 to 2012) after maturity/surrender in 2021 is it taxable?
    if pension is commuted, whether whole amount is is exempted ?
    As per Section 80CCC, (ii)clause, any amount received from pension received from annuity plan is taxable,
    Section 10(10A) (iii) clause says any commuted pension received from fund setup under section 10(23AAB) is exempt,
    so can you please tell if entire amount receivable on maturity is taxable or exempt. Help is also required with the difference between commutation and surrender.

  7. 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?

  8. 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

  9. 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

  10. 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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