Income Tax on Pension

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

  • Employees may choose to receive a certain percentage of their pension in advance at the time of retirement. Such pension received in advance is called commuted pension. This is payable as a lump sum amount. For example, a person has entitled to INR 10000 pm. He/She may decide to receive 25% of his monthly pension in advance for the next 10 years worth INR 10,000. Therefore, 25% of INR 10000x12x10 = INR 3,00,000 is your commuted pension.
  • Commuted pension is fully exempt for a government employee. However, for a non-government employee, it is partially exempt.
  • A non-government employee who receives pension along with gratuity, 1/3rd of the 100% of the commuted pension is exempt. Balance is taxable under the salary head.
  • A non-government employee receiving only a pension and not a gratuity, 50% of the 100% of the commuted pension is exempt.
  • Uncommuted pension refers to periodic payments received by the individual. Any amount received as Uncommuted Pension is fully taxable in the hands of both government and non-government employees.
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Tax of Commuted and Uncommuted Pension

  • Uncommuted pension or any periodical payment of pension is fully taxable as salary.
  • Commuted or lump sum pension received may be exempt in some instances.
    • For a government employee, commuted pension is fully exempt.
    • For a non-government employee, it is partially exempt.
      • If gratuity is also received with a pension – 1/3rd of the amount of pension that would have been received, if 100% of the pension was commuted, is exempt from commuted pension and remaining is taxed as salary.
      • And in case the only pension is received and gratuity is not received – ½ of the amount of pension that would have been received, if 100% of the pension was commuted, is exempt.

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 ).

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Tax Treatment of Pension

  • While filing ITR-1 you have to choose the ‘Pensioners’ option in the field ‘Nature of Employment’ under the general information section.
  • Whereas in other ITR’s nature of employer is as “Pensioners” in the salary schedule. Therefore, pension income taxable as ‘salary’ has to be reported by mentioning the name, address, tax collection account number (TAN) of the employer and the TDS thereon.
  • Amount of the pension to the extent tax-exempt must be entered in the field ‘Commuted value of pension received under Section 10(10A)’ under the ‘Allowances to the extent exempt under section 10’. We have to report excess amount as ‘Annuity Pension’ under ‘Salary under Section 17(1)’
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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.

  2. How do I get my form 16 online?

  3. How do I file an income tax return online from Form 16?

  4. Hey @HarshitShah

    Form 16 is one of the most common and widely used documents while preparing their ITR.

    An individual cannot directly download Form 16. Their employers are required to download Form 16 form TRACES website and give it to their employees after each Financial year.

    Employers deduct TDS from their employee’s salary and deposit it with the government. The employees can claim the tax credit while filing their ITR.[1]

    Therefore, you need to ask your employer to generate Form 16 for you. However, you can download your Form 26AS from TRACES yourself. Form 26AS is a tax credit statement, where you’ll find the details of the TDS paid by the deductors to the Income Tax Department on your behalf.

    Employers usually start distributing Form 16 a month before the due date to file your ITR. Employers should provide Form 16 to their employees by 10th July 2019 (extended from 15th June 2019) in the new format. The new format for Form 16 has a detailed breakdown of tax-exempt allowances and deductions claimed by the taxpayer.[2]

    The due date to file taxes for AY 2019–20 is 31 July 2019, after which you will be liable to pay late filing fees of Rs. 5000(effective this very year) u/s 234F. If you’re still confused regarding what to do about your taxes, you can choose one assisted plans from services like Quicko, which is cheaper compared to other online and traditional alternatives.

    Hope this helped. If you have further queries, feel free to comment/message!

    Footnotes

    [1] What is Form 16? | Help Center | Quicko

    [2] Form 16 Changes & How does it affect you?

  5. Hey @SonalYadav

    Form 16 is a TDS certificate on salary. Upload Form 16 and file your ITR for free on Quicko.

    It is the most widely used document to prepare an ITR i.e. Income Tax Return.

    Upload Form 16 and file your ITR for free on Quicko. We use machine learning to accurately read Form 16 and prepare your ITR.

    Form 16 is divided into 2 parts:

    • Part A: It contains details of TDS deducted by the employer on your salary
    • Part B: It is an annexure containing details of Income Chargeable under the head ‘Salary’, like allowances, perquisites, bonus, income tax deductions, etc.

    Steps to File ITR using Form 16:

    1. Upload Form 16: on ERIs (e-Return Intermediary) like Quicko, and algorithms will automatically read your Form 16 and accurately prepare your ITR.[1]
    2. Review ITR: Verify the ITR prepared, and add other income sources or deductions that are not mentioned in your Form-16 (if any); such as house property, interest income, professional income, capital gains, etc.
    3. E-File Return: Pay outstanding tax dues (if any) proceed to e-file the returns.

    Or, you can also manually add your Form 16 details in your ITR. The government has issued a notification standardizing the Form 16 format form AY 2019–20.

    The ITR Forms for AY 2019–20 have a similar salary schedule for Form 16 Part B, making it easier to manually fill the ITR Form.

    Know which ITR Form to file.

    While preparing the ITR using Form 16, you should also refer to the Form 26AS for other income. Form 26AS is a tax credit statement, the taxpayer can claim their tax credit while filing their ITR. Usually, a taxpayer has income from other sources like interest income from a savings account, Fixed Deposit interest, rent, etc. These incomes are usually mentioned in their Form 26AS, and should also be used to file ITR.

    Hope this helps, in case of any query feel free to drop us a message or leave a comment below.

    Footnotes

    [1] Upload Form 16 | E-File Income Tax Return in 5 minutes | Quicko

  6. Hey Krutarth,

    Usually, employers issue Form 16 by 15th June.

    However, due to Covid-19, the return filing dates are extended & you can expect your Form 16 by 15th August for FY 2019-20. Also, Form-16 can only be downloaded from TRACES website by your employer.

    Here’s a video to explaining Form 16

    You can directly upload your Form 16 on Quicko to file your ITR for free

  7. My employer did not give me my Form 16, how do I file my income tax return?

  8. Hi,

    If your employer has not provided you with a Form 16, no need to worry. You can always download your Tax credit statement Form 26AS from the income tax e-Filing website to check TDS credit. And you can use salary slips to determine taxable salary income.

    Read how you can file ITR without Form 16

    Hope this helps

  9. Form 16A is a certificate of TDS on Income other than Salary. When TDS is deducted from the payments like a commission, contract, professional fees, rent, interest, etc., Form 16A is issued.

    It is issued by the deductor to the deductee. Deductor (Payer) is a person who makes a payment and deducts TDS. And Deductee (Payee) is a person whose TDS is deducted. Deductor is responsible to issue Form 16A to the deductee within 15 days from the date of filing the TDS Return.

    You can read more about Form 16A here.

    Got questions? Shoot’em here.

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