Is pension taxable? That’s the question that we have found many pensioners asking in different forums. So, we decided to clear the air for you.
Just so you know, tax implications are applicable for pension under the category of salary income in ITR. Pensions are disbursed periodically, usually each month. However, taxpayers can get their pensions in one go instead of regular payments.
A taxpayer and an employer participate in an annuity fund, and the taxpayer receives a pension from the fund. During retirement, individuals can get a specific percentage of their pensions in advance. Receiving this amount in advance is known as commuted pension.
Mr Singh, aged 60 years, decides to obtain 5% of his monthly pension ahead of time for the upcoming 5 years. The amount of pension per month is Rs. 12,000. He will receive a lump-sum payment. Therefore, commuted pension = 5% of Rs. (12,000 x 12 x 5) = Rs. 36,000. He will be receiving Rs. 11,400 (95% of Rs. 12,000) as uncommuted pension for the upcoming 5 years until he is 65. After 65, he will be paid Rs. 12,000 as the monthly amount.
For pension taxability, you must file ITR every financial year. Here’s how to report pension income while filing ITR:
When a family member receives a pension, he/she will be paying tax under the category of other ‘Income from Other Sources’. The following tax implications will be applicable in a family member’s tax return:
For instance, Mr Sharma’s wife gets a pension worth Rs. 90,000. Exemption offered will be the least of Rs. 30,000 (one-third of Rs. 90,000) or Rs. 15,000. So, the tax liability on pension for Mr Sharma’s wife will be Rs. 75,000 (Rs. 90,000 – Rs. 15,000).
Tax exemption on a pension is available for UNO employees and their family members. The pension received by a family member of an individual in the armed forces is also tax-exempt.
An employer may offer pension to an individual after retirement. Taxpayers can also start investing in a pension policy to ease the financial burden after retirement. Section 80CCD and Section 80CCC provide deductions for investing in pension schemes. Before e-filing tax returns, pension taxability must be computed as per the Income Tax Department.
Ans: Yes, taxpayers can obtain Form 16 from their previous employers or from the banks processing their payments. Form 16 refers to a certificate issued to employees by their employers. It provides information about an employee’s salary and the amount of TDS deducted by his/her employer.
Ans: When an individual’s yearly pension amount is above Rs. 2,50,000, he/she must file ITR. For senior citizens (aged 60 and above), the exemption limit amounts to Rs. 3,00,000. Super senior citizens (aged 80 and above) get an exemption limit of Rs. 5,00,000.
Ans: Section 80C allows a tax deduction of Rs. 1,50,000 from an assessee’s total earnings during each financial year. HUFs and individuals can avail of this tax benefit. The deductions are available for investments PPF, ELSS funds, EPF, ULIP, etc.
Ans: Section 80CCD(1) includes deductions for an individual’s contribution towards the National Pension Scheme. The maximum deduction limit will be the least of:
• Rs. 1,50,000
• 20 percent of gross income for self-employed individuals
• 10 percent of salary for an employee
Ans: Section 80GG offers a deduction for rent payable only when House Rent Allowance (HRA) is not available. However, the following conditions are applicable for deduction:
• Taxpayers and their family members should not own any residential property at the location of work.
• An individual should not be having a self-occupied property in any other area.
Ans: Section 80D allows a tax deduction of Rs. 25,000 on insurance of taxpayers and their family members. HUFs and individuals are eligible for this tax benefit. An extra deduction of Rs. 25,000 (maximum) is applicable for parents aged below 60 years.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 145A||Section 80P||Section 92CD|
|Section 281||Section 32(2)||Section 270A|
|Section 1399||Section 192A||Section 11|
|Section 35AD||Section 80C||Section 32|
|Section 206AA||Section 92E||Section 9|
|Section 153||Section 10(10D)||Section 194DA|
|Section 10AA||Section 80GG||Section 80TTB|
|Section 80JJAA||Section 1940||Section 23B|
|Section 206AB||Section 44AB||Section 87A|
|Section 115JB||Section 154||Section 194D|
|Section 194J(1)(ba)||Sectio 80U||Section 194K|
|Section 56-59||Section 80TTA||Section 234C|
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