How to Calculate Income Tax on Pension Income or Tax Treatment of Pension Income, Income Tax on Family Pension or How to Compute Tax on Pension Income these are the general question at the time of retirement every person has it?
Pension income can be the in the form of monthly income or onetime payment (Commuted pension) made by the employer at the time of retirement or death of an employee. In case of the Government employees onetime pension income is not taxable but for others it will be taxable subject to certain conditions given under the income tax act.
In case of monthly pension income it will be taxed at the “normal slab rates” of the income tax act. ( Check Income Tax Slab Rate https://www.vatfaq.in/income-tax-slab-income-tax-rates-for-fy-2013-14-ay-2014-15.html)
Pension Income Not Taxable for following persons
- Pension received from UNO by the employee or his family member is exempt
- Family pension received by the family member of deceased employee is taxable in the hand of family member in the head income from other sources but family pension received by family member of deceased armed force employee will be exmepted from Income Tax.
- Judge of supreme court and high court will be entitled to the exemption of the commuted pension
Pension Income Tax Treatment or Income Tax Calculation on Pension Income
- Monthly/uncommuted pension: Taxable in case of all employees
- Commuted pension:
i) Government employee
– Exemption is available under section 10(10A)
(Central/state/PSU/local authority/statuary Corporation)
ii) Non-Government employee
Receiving Gratuity with pension
Not Receiving Gratuity with pension
1/3 of 100% of commuted pension is exempt
½ of 100% of commuted pension is exempt
Income Tax Treatment for Pension Scheme of Central Government Employees
Pension scheme in case of an employee joining central government on or after jan,1,2004
- It is mandatory for persons entering the services of the CG on or after Jan.2004 to contribute 10% of salary every month towards their pension account & Govt. also contribute at the same rate
- Salary= Basic pay + D.A.(if)
- Contribution by CG is included in salary of employees
- Deduction u/s 80C will not be available if deduction is claimed u/s 80CCD
- When pension is received out of the aforesaid amount it will be chargeable to tax in the hand of family member in the head income from other sources
Reference: Section 10(19) of Income Tax Act, 1961 and Rule 2BBA of Income Tax Rules
Section 10(19) of Income Tax Act: Income Exempted from Income Tax
(19) family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including para-military forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed.
Circumstances and conditions for the purposes of clause (19) of section 10.
2BBA. (1) For the purposes of clause (19) of section 10, the circumstances of death of a member of the armed forces (including para-military forces) of the Union in the course of operational duties shall be the following, namely :—
(i) acts of violence or kidnapping or attacks by terrorists or anti-social elements;
(ii) action against extremists or anti-social elements;
(iii) enemy action in international war;
(iv) action during deployment with a peace keeping mission abroad;
(v) border skirmishes;
(vi) laying or clearance of mines including enemy mines as also mine sweeping operations;
(vii) explosions of mines while laying operationally oriented mine-fields or lifting or negotiation mine-fields laid by the enemy or own forces in operational areas near international borders or the line of control;
(viii) in the aid of civil power in dealing with natural calamities and rescue operations;
(ix) in the aid of civil power in quelling agitation or riots or revolts by demonstrators.
(2) It shall be certified by the Head of the Department where the deceased member of the armed forces (including para-military forces) last served, or the service headquarters, as the case may be, that the death of such member has occurred in the course of operational duties in circumstances mentioned in sub-rule (1).