1. Commuted and Uncommuted Pension
Typically, the employer and the taxpayer contribute together in a pension fund, which pays the taxpayer's pension out of the fund. At the time of retirement, you may choose to receive a certain percentage of your pension early. Such an early pension is called a commuted pension. For example, when you are 60 years old, you decide to get 10% of your monthly pension in advance for the next 10 years at a cost of Rs 10,000. This will be paid to you as a lump sum. Therefore, 10% of Rs 10000x12x10 = Rs 1,20,000 is your adjusted pension. You will continue to receive Rs 9,000 (your unchanged pension) for the next 10 years until you reach the age of 70 and over 70, you will receive your total pension of Rs 10,000.
2. Taxability of Commuted and Uncommuted Pension
- Unchanged pension and any periodic pension payments are paid in full as salary. In the above scenario, Rs 9,000 received by you is fully taxable. Rs 10,000, from the age of 70, is also fully taxable.
- Changes or allowances received may be waived in some cases.
- For a public servant, the reduced pension is completely exempt.
- For a non-government employee, we are partially free.
- If the debt is received on a pension - 1 / 3rd of the amount of pension that would have been received, if 100% of the pension is reduced, you are not deducted from the reduced pension and deducted tax as income.
- And only if the pension is received and the money can be received - ½ of the amount of pension that would have been received, if 100% of the pension changed, you are released.
3. Report pension income in ITR
How do you report your pension and employer details on your income tax return?
- In ITR, you must select the ‘Pensioners’ option in the ‘Employment Status’ category under the salary schedule.
- Pension tax as ‘income’ should be reported by name, address, employer tax collection (TAN) number and deductible tax (TDS) there. A certain limit on the amount of pension exempt from income tax should be reported as ‘Changed Pension’. Any excess amount must be reported as a ‘pensionable pension’ under ‘income under Section 17 (1)’ of the Income Tax Act, 1961
4. Pension received by a family member
A family member's pension is taxed under the headline ‘income from other sources’ in a family member income tax return.
- If this pension is reduced or is a lump sum, it is tax free.
- The fixed pension received by a family member is exempt to a certain extent. Rs. 15,000 or 1 / 3rd of the immovable pension received - whichever is less taxable.
5. Pension received from UNO
UNO pensions received by its employees or their families are tax-free. Pensions received by family members of the military are also exempt.
Frequently Asked Questions
How is pension income taxed?
Pension money is tax deductible as income from income.
Is pension eligible for standard deduction given for salary income?
You can apply for a standard deduction of taxable pensionable income as income from salaries.
Will I receive a Form 16 on pension income taxable as salary?
You will receive a Form 16 from your previous employer or debit bank.
Should I file an income tax return on my pension income?
You need to file a refund if your annual pension exceeds Rs 2.5 lakh. In the case of adults aged 60 years or older, the limit is Rs 3 lakh. Also, in the case of adults aged 80 and over, the limit is Rs 5 lakh.