Pension Income and applicability of Standard deduction u/s 16(ia)
There are various types of Pensions that a person can receive, some of these are as below:
1. Annuity (uncommuted Pension) received from current employer
2. Annuity (uncommuted Pension) received from former employer
3. Family pension (i.e pension received after death of employee)
4. Annuity (uncommuted Pension) received from any person other than employer (like LIC Annuity)
We know that standard deduction for salaried employees u/s 16(ia) has been increased from Rs 40,000 (FY 2018-19) to Rs 50,000 (for FY 2019-20) through Finance Act 2019.
A common question arises whether aforesaid standard deduction can be claimed in respect of pension Income or not.
Argument against availing standard deduction u/s 16(ia)
In order to treat any income as Income from Salaries there has to be an employer-employee relationship. Pension received after retirement is based on the accumulated amount in the pension fund and on the date of receipt of such pension the employer- employee relationship cease to exist.
Hence many people treat this pension income as “Income from other sources” and if this is the case then standard deduction u/s 16(ia) will not be applicable as sec 16(ia) deduction will only be applicable when there is “Income from Salaries”.
Argument in favour of availing standard deduction u/s 16(ia)
U/s 17(1) salary includes:
1. …….
2. Any annuity or pension
3. ……
Hence periodical pension received from current or past employer is taxable as Income from Salaries.
Hence standard deduction u/s 16(ia) is well applicable for periodical (uncommuted) pension received from current or past employer. (The same has been confirmed by CBDT press release dated 05.04.2018 which is reproduced below.)
However family pension (i.e pension received by family member after death of employee) is taxable under the head “Income from Other Sources” (Deduction of 1/3rd of pension amount or Rs 15,000 P.A whichever is lower is applicable u/s 57(iia)
Beside it annuity (also called pension) received from a person other than employer (like LIC Annuity) is taxable under the head “Income from Other Sources” and standard deduction u/s 16(ia) is not applicable on such Income.
The above provisions can be summarized below:
| S.N | Type of Income | Head of Income | Applicability of Deduction |
| 1 | Annuity (uncommuted Pension) received from current employer | Income from Salaries | Yes, u/s 16(ia) Rs 40,000 P.A (FY 18-19) and Rs 50,000 P.A (FY 19-20) |
| 2 | Annuity (uncommuted Pension) received from former employer | Income from Salaries | Yes, u/s 16(ia) Rs 40,000 P.A (FY 18-19) and Rs 50,000 P.A (FY 19-20) |
| 3 | Family pension (i.e pension received after death of employee) | Income from Other Sources | Yes, u/s 57(iia) i.e 1/3rd of pension amount or Rs 15,000 P.A whichever is lower |
| 4 | Annuity (uncommuted Pension) received from any person other than employer (like LIC Annuity) | Income from Other Sources | No |
Press release dated 05.04.2018 can be accessed at the following link-
Author Bio
Hi Srikant,
how can I connect with you for consultancy on tax related matters?
Tanmay.
LIC pension policies monthly payments after maturity to senior
citizens. Is standard deduction upto 50000
per year permissible under 16A, in addition
to 80TTB for interest upto Rs 50000.
-Shiva
very nice and clear clarification about pension income.
thanks.
I AM RETIRED FROM AMC CORPORATION. PENSION RS 404807 FROM AMC.CAN I AVAIL STAN DEC RS 50000/- IN FY 20-21.U/S 16(IA).GUIDE ME.
Knowledge
OFFhand
Suggest to consider , and spare and share valid viewpoints, if any, having regard to the proposal in the 2021 Budget in order to ease of compliance by pensioners.
More questions arise for finding an answer in the case of an employee of a partnership Firm; later admitted as a Partner in the firm and is in receipt of ‘salary’, apart from share in the Firm’s profits. ?!?
BACK to the writer/ Over to the EXPERTS in field practice with exerience in and exposure to taxation of partnership firms !
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