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-

Clarification regarding applicability of standard deduction to pension received from the former employer 

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15 Comments

  1. Chandrasekharan Doddigananahalli says:

    As per sec 17(1) of IT act, any annuity or pension is considered as salary. Under PMVVY by LIC, annuity pension is received for the amount kept with them for 10 years. Hence, it is felt that this pension to be taken as Salary and standard deduction is allowed

  2. MUNISH KUMAR says:

    I am serving in a bank and receiving pension as an ex serviceman.Can i claim standard deduction of 40000 on both salary and pension as it is declared now that pensioners can avail 40000 deduction..

  3. MUNISH KUMAR says:

    I am serving in a bank and receiving pension as an ex serviceman.Can i claim standard deduction of 40000 on both salary and pension as it is declared now that pensioners can avail 40000 deduction>>>

  4. S.Tripathi says:

    Can a pensioner can claim Standard Deduction from both Pension (Rs. 40000) and Family Pension (Rs. 15000). Person is getting pension central government and family pension due to death of spouse from central government.

    1. Srikant Agarwal says:

      Family pension (i.e pension received after death of employee) is taxable under the head Income from other sources for which maximum deduction of Rs 15,000 is provided u/s 57.
      For pension received from employment is taxable under the head income from salaries for which deduction of Rs 40,000 (FY 18-19) is provided u/s 16.
      Hence if a person is in receipt of both the pension then he can claim both deduction u/s 16 and 57.

  5. Dipankar Mukherjee says:

    I am a retired bank employee and receive monthly pension. At the time of superannuation in 2015 I commuted my pension. Also I receive fund from LIC every quarter under the scheme Jeevan Suraksha after commutation of pension. Whether I am eligible for claiming standard deduction u/s 16(ia)

    1. Srikant Agarwal says:

      You can claim standard deduction for uncommuted (if any) part of the pension.
      For LIC pension no standard deduction is available.

  6. mssachdeva says:

    i am pensioner of lic.sold some equity shares purchased in 1997, sold in feb 2019 proceeds 50000.longterm capital gain abt 15000.pl confirm if these are exempt from itax.advise itr form and COLUMN where to be shown or not to be shown

  7. Raghuraman says:

    Can retired persons receiving pension under EPS95 and pension from Super Annuation FUND created by companies through LIC claim the rebate?

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