Esha Agrawal

PENSION

  • Pension is a retirement benefit; this is taxed as salary in the hands of the employee.
  • Tax is deductable under section 192 of income tax act on payment.
  • Family pension received by the dependence of the employee is taxable under the head income from other source.
  • TDS is not deductible on family pension received by the dependence of the employe as it is not covered under section 192 of the Income tax act and instead been covered as Income from Other Sources.
  • Exemption under section 10 (18) if any income by way of pension / family pension shall be exempt if such individual has been in the service of central government/ state government and has been awarded Paramvir Chakra or Mahavir Chakra, or Vir Chakra or such other Gallantry awards as may be notified.
  • Exemption of family pension received by the family members of armed forces (including paramilitary forces) personnel killed in action in certain circumstances 10 (19).

Who is eligible for pension/ family pension

Person himself, his/her spouse, children below 25 year of age, unmarried daughter.

What is the tax treatment for family pension received by the legal heirs of a deceased employee

It will be taxable under the head ‘income from other source’ .under section 57(iia) a standard deduction shall be allowed to the legal heir @33.333% of such pension or Rs. 15,000, whichever is less.

Important point:Divorced wife loses the status of a legally wedded wife and as such is not entitled to the award of family pension. However, the eligible child/children from a divorced wife shall be entitled to the share of family pension which the mother would have received at the time of death of her husband had she not been divorced.

What are the document to be filled for family pension in case of death?

  • certificate of income, required to be submitted by a claimant member of family (other than spouse) along with application form (Form 14)
  • PPO and death certificate after the death of a pensioner/family pensioner
  • Department of Personnel, P.G. & Pensions(DOPPW), Government of India, New Delhi has issued the O.M. No. 1/16/2011-P&PW(E) dated 20.9.2012 regarding- Family pension, this O.M. is being uploaded on the ICAR web-site icar.org.in for information and further guidance.

What are the documents to be filled when the name of the claimant member is not available in the records?

The certificates prescribed at serial number 9(v) of Form 14 may be accepted. In addition to these certificates:-

  • PAN Card, Matriculation Certificate, Passport.
  • CGHS Card, Driving License
  • Voter’s ID card and Aadhar Number may also be accepted.

The Applicant has also to prove that no other surviving member in the family, who may have a prior entitlement for family pension, is eligible. For this purpose the above and/or any other document such as marriage/death/income certificate of the other member, which may be essential in a given situation may be used.

FOR DETAIL OF OTHER FORMS PLEASE REFER WEBSITE www.pensionersportal.gov.in/forms/Applicationforms/mapplication.asp

Two kinds of pension:-

Uncommuted pension:- periodical payment on monthly basis

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Commuted pension:- when a person forgo a portion of the pension and receive a lumpsum amount by surrendering such portion of pension, this is called commuted pension. The pension may be fully or partly commuted.

Tax Treatment of Pension:-

There are two kinds for treatment of pension is as under:-

Uncommuted pension i.e. periodical pension It is fully taxable in the hands of all employees, whether government or non- government.
Commuted Pension a)Exempted in case of Government employee or employee of local authorities or statutory corporation[section 10(10a)(i)]

b) Non-Government Employee

Any commuted pension received is exempt from tax in the following manner:

If the employee is in receipt of gratuity

Exemption = 1/3rd of the amount of pension which he would have received had he commuted the whole of the pension.

If the employee does not receive an gratuity

Exemption = ½ of the amount of pension which he would have received had he commuted the whole of the pension

 

Caution: Exemption shall be to the extent it is allowed to be commuted and the balance uncommuted Pension received periodically will be fully taxable.

Example:- An employee, drawing a salary of Rs. 5000 p.m., retires from service and becomes entitled to receive pension of Rs 3000 p.m. He gets half his pension commuted and receives Rs. 60000 as lump sum payment. Henceforth, he shall be entitled to a pension of Rs. 1500 p.m. Compute the exemption available under section 10(10A) in respect of the commuted pension. He is also entitled to gratuity.

Solution:- in this example, employee was entitled to a pension of Rs 3000 p.m. out of which he commuted 50% i.e. Rs. 1500 p.m. and received a sum of Rs 60000. The exemption, however, will be to the extent of commuted value of 1/3 of the total pension which he was entitled to receive i.e. 1/3 of Rs. 30000. If commuted value of Rs 1500 is Rs. 60000, full commuted value would be Rs. 120000 and 1/3 of the same i.e. Rs. 40000 shall be exempt. The balance Rs. 20000 shall be included in gross salary. Alternatively, the exemption can be calculated as under:

For Rs. 1500 pension commuted- amount receive Rs. 60000

For Rs. 1000 pension commuted-commuted amount shall be

               Hence, if the employee is also entitled to gratuity then let out of the same Rs 60000 received as commutation of pension, Rs 40000 would be exempt and Rs. 20000 would be taxable. Besides, the uncommuted pension of Rs 1500 per month will also be taxable.

Point to be remember;-    

  • Judges of the Supreme Court or High Court will be entitled to exemption of the commuted portion not exceeding ½ of the pension.
  • Any commuted pension received by an individual out of annuity plan of the life insurance corporation of India (LIC) from a fund setup by that corporation will be exempt.

 Deduction in respect of contribution to certain pension funds(section 80ccc)

  • Permissible to individual only
  • Allowed in respect of any amount paid or deposited in the previous year
  • Amount of deduction; whole of the amount paid or deposit or 1,00,000 whichever is lower.

Deduction in respect of contribution to pension scheme of central Government or any other employee (section 80CCD)

  • Permissible to individual(self employed), employed by the central government or by any other employer
  • Amount not exceeds 10% of salary of P.Y. paid or deposit by the employee in his account under the notified pension scheme.
  • Any amount contributed by any other assessee being an individual(self employed) to such pension scheme not exceeding 10% of his gross total income in the P.Y.
  • Any amount contributes by the employer (i.e. central government or any other employer) to such pension scheme not exceeding 10% of the salary of the employee.

QUERY ON PENSION:-

Whether Pension (social security benefit) received by an Indian resident and ordinary resident from USA upon retirement is Taxable in India? What are the provisions in DTAA regarding this issue?

If the assessee is a resident in India and ordinary resident in India then – the assessee’s all the income (Indian and foreign) will be included in the total income and thus it will be taxed.

Several former residents of the United States (U.S.), who have settled in India, derive Social Security Benefits and Public Pensions in the U.S. In general terms, an individual who is Resident & Ordinarily Resident (R&OR) for tax purposes in India is required to pay tax in India on his or her global income. However, as per Article 20(2) of the Double Tax Avoidance Agreement (DTAA) between India and the U.S., such Social Security Benefits and Public Pensions paid by the U.S., even to an Indian Resident and R&OR under Indian Tax Laws, are taxable only in the U.S. and not required to be offered for income-tax in India, and hence according to the article 20 (2) of DTTA pension from U.S. need not be taxed in India again.

Family pension that is pension received by the members of the family of an employee subsequent to his death -This is taxable under the head  “income from other sources”. However the pension received by an employee from his former employer is taxable under the head salaries

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31 responses to “All you want to know about Pension & Its Taxability”

  1. Vinod kumar says:

    सर
    मैं शिक्षा विभाग में सरकारी कर्मचारी हु और डिफेंस की पेंशन प्राप्त कर रहा हु जो कि मेरी पेंशन डिसेबिलिटी पेंशन है इनवैलिड आउट हुआ था
    अब मुझे आई टी आर भरना है तो कैसे मैं मेरी डिसेबिलिटी पेंशन को itr में दिखाऊ कैसे मुझे रिबेट मिलेगी वैसे डिसेबिलिटी पेंशन तोतली टैक्स फ्री है
    अब आप मुझे बताये

  2. priya says:

    I have a query regarding pension. A person is receiving pension on an yearly basis whether it comes under commuted or uncommuted pension. if it covers under commuted pension what is the provision regarding taxable income.

  3. manoj dhande says:

    My sister is widow and my brother was working in central railways. My sister is receiving 27k as a pension. My sister got a job in central railways as a compensation of my brother. Now her salary is 25k. Can you tell me how income tax will be calculated in above case. And how tax can be saved????

  4. Poojan Mehta says:

    Please Let me know the following points:

    1. Whether Pension received by the individual himself is taxable where the individual is a self employed.

    2. Whether individual receives pension on yearly basis is commuted pension or uncommuted.

  5. Swami V K says:

    I retired from StateBank of India. In case total pension received / credited in account is 32000/- and (Rs 6000/- (1/3rd of basic pay was commuted))so for payment of income tax the taxable income will be Rs32000x12 or Rs38000x12.Will be obliged to get clarification. Please do not publish and send reply on mail. –

  6. amit kumar says:

    i am a retired army person and currently employed with an autonomous body.i am recieving my defence pension after deduction of TDS.now my employer asking me to show as a part of income.what to do….

    thanks

  7. samar says:

    Mam, if a retired army personnel is reemployed again in defence as civil service on c grade post, so is his pension taxable?

  8. Kaushik says:

    I have a query. My uncle was a servant in CRPF(CG). He voluntarily retired in 2004. He has been receiving pension monthly. Now he has received arrears pnsion of Rs.350000. He is an NRI for the past 8 years. What is the taxability of the arrears amount received? tds has been deducted on such amount. How to claim it?

  9. Ankit Yadav says:

    My father was a Central govt employee. He passed away before retiring from service. Now my mom is receiving family pension and we are not sure If we need to pay tax on that or its already being deducted by the bank or pension office. Could please throw some light on this.

    Regards,
    Ankit

  10. SANDEEP PANDIT says:

    I retired from the Indian Army in May 2003. Recently, on account of upward revision of retiring pension, I received arrears of Commutation of Pension as well as gratuity with interest. I know that Commutation and Gratuity are exempt from tax. But I wanted to know whether the interest on the arrears of Commutation and Gratuity is exempt or not. Can somebody give me an answer please?

  11. Aisha says:

    I am a widow. My husband was an employee in state govt and i receive approx 23000pm as a family pension. Am i eligible to pay tax or the bank issuing family pension is dedcucting tax at source?

    • Swatanter bhardwaj says:

      i am serving in education department, Punjab as Lecturer and receiving family pension after the death of my wife. whether the family pension received by me in my bank account is divisible among legal heirs i.e. among my children for tax purpose. If it is divisible then what is the process to divide it.

  12. DHIRAJ KR SINGH says:

    MY FATHER IS A SR CITIZEN AND 75% DISABLED & WITHDRAWING A PENSION OF RS 4340 PER MONTH WHO IS FULLY DEPENDED ON ME AND RESIDING WITH ME THAT I AM A GOVT EMPLOYEE FURTHER I WANT TO KNOW THAT WILL I GET EXEMPTION UNDER INCOME TAX ACT OF SEC 80DD.

  13. Abhishek Singh says:

    I want to know about commute deduction.pls give me some information about it.

  14. Yogendra Singh says:

    My father is retired in 1991 from JCO post from Indian Army, this month he received half of pension & when he asked how it is the banker is saying it is deducted because of Income tax. Pl. advise how to add PAN CARD into pension account.

  15. KUNTAL SEN says:

    My inlaw retired in Aug,2012 (state government employee) & till retirement date his cumulative gross salary was within exemption limit.Later he had received retirement benefit of Rs 12 Lacs .Now IT Dept has issued letter for non filling of IT Return.

    Kindly advise how to reply to IT Dept.

  16. Ganapathy says:

    Some of ex-service people have joined our office as Security Officer / Security Incharges. What is the Form (12C, etc.), on which, they should disclose their ex-Army pension income to the current employer.

  17. Husain says:

    I received Family Provident Fund Pension. Is it taxable to me?

    If yes, then income under which head

  18. SUNIL says:

    My relative received arrears pension of her husband who was died at his duty time.So money received in form of arrears is taxable or not please help regarding this.Bank has hold the pension whay will be the solution

  19. R,K,MANGLA says:

    I was working with a private sector bank where a contribution was being made in the pension fund recognised under Income Tax Act. On resignation I have opted for 1/3 commutation. I also received gratuiyu.Pl advise me whether the 1/3rd commutation is exempt from tax and under which section?

  20. Rajesh Goyal says:

    Since new rule has been added for senior citizens regarding advance tax, i.e. when senior citizens not having any business income can pay self assessment tax and are not required to pay any advance tax, then why TDS is deducted on pension?
    Can we request to paying authority, not to deduct TDS and we pay self assessment tax while filing IT Return? I am a retired central government employee.

  21. ashwani aggarwal says:

    I retired from one of the Subsidary of StateBank of India i.e.State Bank of Patiala. Whether we shall be treated as Government employee or not as treatment on retirement benefit like leave encashment appears to be different for government and non-government employees. Secondly in case total pension received / credited in account is 37000/- and (Rs 6000/- (1/3rd of basic pay was commuted))so for payment of income tax the taxable income will be Rs37000x12 or Rs43000x12.Will be obliged to get clarification. Please do not publish and send reply on mail.

  22. SYED ATHAULLA says:

    Madam, I am retired bank clerk and getting pension of Rs24000/= per month.since I am private bank employee, our bank has purchased annuity from LIC and LIC is disbursing pension every month. Whether LIC has to deduct TDS or I have to pay tax during filing of tax return. (my age is 57 years)

    Pl. clarify.

    syed athaulla

  23. HM JAIN says:

    How the family pension be apportioned amongst the legal heirs for taxability.under the income tax act? If the legal heir is widow and 2 children below 25 years weather it should be 1/3 in the hands of each person to be included in total income.Likewise the lumpsum arrears of family pension for several years due to increas in pension as per 5th finance commision.Weather to be apportioned for taxation ?

  24. jose says:

    I would like to know the Family pension that I receive for Seven year at higher rate (double than the normal; because of my wife death while she was in service) is taxable under income tax?. some one told me it is like ex-gratia payment (as she was working when she died) so it is not taxable. is it true?

  25. CA Sunil Vinchu says:

    Section 192 no where mentions that Family Pension is not eligible for TDS, to the best of my reading and understanding of the section. Could You please be kind enough to enlighten me in this regards at length. This is specially so since to the best of my knowledge Salary includes Pension (i.e. Family Pension too) With due respects,

  26. Shankar says:

    I would like to know if the family pension is payable to the autistic son of retired female employee irrespective of his age. Since the mental disability of the son is permanent, I am told he would be eligible.

  27. CA S D Agarwal says:

    Good information shared with us.. A complete information memorandum on pension. Nice work

  28. Gopalakrishnan Nair says:

    Please let me know whether I can claim exemption for the amount spent on LF
    C/LTC on Income tax calculation just like salaried persons.Please note that I am not eligible for ltc/Lfc amount as such from the employer(now retired).I have not gone thru any news on the subject.

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