Tax On Pension

Tax on Pension received by following employees is fully exempt:

  1. Commuted pension received by Government employees is fully exempt.

  2. Pension received by Notified employees is fully exempt.

  3. Commuted Pension received by Non Government employees out of Fund approved under section 10(23AAB) is fully exempt.

Click here to read more about Taxable Pension.

Family Pension?

Tax On Pension Calculation Tax On Pension In India

In case if the employee dies while being in service or after retirement, his family members/nominee will receive the pension.

Pension received by employee's family is taxable under the head "Income from Other Sources" as per Income Tax Act in India.

On this page:

How to Calculate Taxable Pension?

The computation is as under: -

Family Pension received by the members of the employee's family xxx
Less: Standard Deduction (Lower of the following)
1/3 of the Family Pension xxx
Rs.15,000 xxx
xxx
---
xxx
Less: Any other expenditure xxx
---
Less: Exemption under section:
Section 10(18)(ii) xxx
Section 10(19) xxx
---
xxx
---
Taxable Pension xxx
---

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Exemption Available U/S 10(18)(ii) and 10(19)

Exemption under Section 10(18)(ii) is available for Family Pension received by member of the family of an Individual awarded with Gallantry Award.

Exemption under Section 10(19) is available for Family Pension received by,

  • the widow or

  • children or

  • nominated heirs,

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.

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Example Calculation

Let's consider Mr.A a Government Servant, died on 11-05-2008 whilst still being in service. In terms of the rules governing his service, his wife Mrs.A is paid a family pension of Rs.9000 p/m and dearness allowance of 30%.

For AY 2012-13, to calculate the Tax on Pension received by Mrs.A, we have to first calculate the taxable pension as given below:

Family Pension received by Mrs.A (9000 x 12) 1,08,000
Dearness Allowance (30% of family pension) 32,400
--------
Total Pension 1,40,400
Less: Standard Deduction
Least of the following:
1/3 of the total pension 46,800
Standard Amount 15,000
15,000
--------
Taxable Pension 1,25,400
--------

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Tax On Pension FAQ

Tax on Family Pension and Return filing

My father was in Govt Service and retired in August 2010. My father died in December 2010. My mother is getting family pension around 25000 per month.

Do we need to pay Income tax on Family pension? Do we need to file ITR?

The total pension received by your Mother would be around (25000 * 12) Rs.3,00,000.

So you can only claim the standard deduction of Rs.15,000. Bank may deduct TDS for the remaining amount Rs.2,85,000.

Your mother has to file return of income.

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Tax on Pension in the hands of Minor Children

I am a single mother of my two children. My husband passed away last February (2011). He was working in a MNC.

I am currently receiving Family pension. I am planning for a remarriage in October 2012. Before that, I want to transfer the family pension to my children equally. Please let me know how to transfer it legally? How the pension will be taxed?

My children are Minors (7 & 10 years old). They don't have PAN.

Please check the pension guidelines available for transfer to your minor son. Any income earned by your minor son would be clubbed in your hands. Therefore, there would not be any tax benefit.

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Widow receiving Family Pension along with Income from House Property

I am a widow. I am receiving Family Pension. My husband was a State Govt. Employee and died last year.

The pension amount is Rs.18,500 per month. I own a residential house. Recently I modified it and constructed additional floors and let it out.

Now, in addition to the family pension, I am getting Rental Income of around Rs.40,000 per month. I don't have any other income. I am paying my daughters(two) college and hostel fees (2,30,000 per annum).

Is there any tax exemption available for the Tax on Pension we receive? Do I need to file my return.

Your total pension income would be around Rs.2,22,000. You can claim standard Pension Deduction of Rs.15,000.

Your Income from house property would come around (40000 * 12) Rs.4,80,000. In case if you have taken any loan for Modification/Improvement of your house, you can claim Interest Deduction. You can claim 30% of the Rental Income as standard deduction. Click here to read more about let-out income calculation.

You have not mentioned your age. Depending upon your age, if your total income exceeds the Basic Exemption Limit, then you need to file your return of income. Click here to know the exemption limit for AY 2012-13.

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Senior Citizen Tax on Pension and Interest Income

I am a retired person. I am getting more than Rs.2,00,000 per annum by means of pension. Also I am getting interest income around Rs.30,000. Do I need to file my return?

I didn't submit Form 15H to the bank. Will the bank deduct TDS?

After me, my wife will get the family pension. She has no other income. Will the bank deduct TDS from family pension also? How can she avoid TDS?

Though your total taxable income is less than Rs.5,00,000, as your Income from Other Sources is more than Rs.10,000, you need to file your return.

You need not file your return, if you are a Senior Citizen (>60 years of age).

In case you want to claim refund, if any, for the TDS deducted by bank you shall file your return.

Submitting Form 15H before the beginning of the financial year (i.e before 01-April) is best way to avoid TDS deducted by banks on interest income.

For family pension, the TDS would be deducted if it exceeds the basic exemption limit. Tax Planning can be done by availing benefit of Chapter VI-A deductions and such other deductions eligible at the time of the year of earning income.

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