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Income Tax on Pension

author portrait

Divya Singhvi

Income from salary
Income Tax
Pension Income
Last updated on May 28th, 2021

The employer pays the employee a certain amount regularly in consideration of his past service. These periodic payments are Pension. Pension is taxable under the head “Income from Salary“. Further, pension received by a family member of the deceased employee is taxable under the head “Income from other sources.”

Pensions received from UNO by its employees or their family is exempt from tax. Pension received by family members of armed forces is also exempt. 

Commuted and Uncommuted Pension

ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, Rental income from one house property & income from other sources
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ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, Rental income from one house property & income from other sources
[Rated 4.8 stars by customers like you]

Tax of Commuted and Uncommuted Pension

Income Tax on Pension received by Family Member

Pension received by the family member of the deceased employee is taxable under the head income from other sources. Commuted or lump-sum payment of family pension is not taxable.

Uncommuted pension received by a family member is exempt to the extent of INR 15,000 or 1/3rd of the uncommuted pension received – whichever is less. For example, a family member receives a monthly pension of INR 50,000/-. So the exemption will be INR 15,000/- [lower of INR 15,000/- or INR 16,665/- (INR 50,000*33.33%)]. Thus, the taxable family pension will be INR 35,000/- ( 50,000 – 15,000 ).

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
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Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
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Tax Treatment of Pension

Income Tax on Pension
Salary Schedule: Pensioner
Income Tax on Pension
ITR for Pensioners
CA Assisted Income Tax Return filing for individual senior citizens receiving pension income.
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ITR for Pensioners
CA Assisted Income Tax Return filing for individual senior citizens receiving pension income.
[Rated 4.8 stars by customers like you]

FAQ

Do I have to file taxes on pension income?

The pensioners are liable to pay income tax on pension if their total income exceeds the maximum exemption limit.

If I receive my pension through a bank who will issue Form-16 or pension statement to me- the bank or my former employer?​​​​

If you are a pensioner, the bank through which you are receiving your pension will issue Form 16.
Hence pension paying branch is bound to give Form 16 for the period and thereafter.

Is Family pension taxed as salary income?​​​

No, it is taxable as income from other sources.​ However, commuted Family Pension is exempt.

Got Questions? Ask Away!

  1. Hey @riya_gupta

    Form 16 is a TDS certificate on salary. It is issued by employers to their employees at the end of each financial year.

    Normally, pension holders do not get Form 16. However, you can ask your employer to provide you with Form 16.

    TDS is usually deducted if your pension amount is more than the basic exemption limit i.e. INR 2.5 Lakh.

    In case, TDS is deducted on your pension you can use Form 26AS. Form 26AS is a tax credit statement. You can use this Form 26AS to claim the tax refund of TDS deducted.

    It is recommended to use Form 26AS since it is a summary of the total tax credit for the financial year. Tax credit comprises of tax is deducted on sources like pension, savings interest, fixed deposits, rent on house property, etc. or taxes paid during the year. Taxpayers usually, forget reporting such income and claim the tax credit.