Income Tax for Pensioners

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Income Tax for Pensioners

For the purposes of taxation, pension payments are treated as salary Income Tax in return forms in India. The dictionary defines a pension as an amount paid at regular intervals by the State or a past employer on account of services previously rendered, age, disability, poverty or other uncontrollable loss suffered. Similar definitions obtain in Section 60 of the Civil Procedure Code and Section 11 of the Pension Act. Pension payments end only upon the death of the retiree.

Income Tax for Pensioners

Pensions in India

Those who serve the formal part of the non-government sector address their pension requirements by legally enforceable pension plans based on schemes of the Employees Provident Fund Organisation. Employers may decide to opt out of these and form Exempted Funds or Superannuation Funds for those employees who choose to decide in favour. Self-employed professionals and blue-collar workers in both organized and unorganized sectors may choose to adopt other voluntary pension schemes.

Difference between Commuted and Uncommuted Pension

Pension is often paid on a monthly basis but it can also be commuted, ie, paid as a single consolidated sum. This consolidated sum may be any percentage of your monthly payment. In such a case, your commuted sum would be calculated and your regular pension would be reduced by an equated monthly amount for as long as your commuted sum remains unrepaid.

Regularly paid pension is taxed in the same manner as regular income.

Commuted pension for a government retiree is fully exempt from income tax payment while it is only partially exempt for others.

Income Tax Exemptions and Deductions for Pensioners

  • For a private sector employee, income tax rules state that where gratuity is also received by the retiree, the exempted income is one third of the amount of pension that would have been received assuming 100% of the pension was commuted. If gratuity is not a part of retirement benefits alongside pension then only one half of the pension that would have been receivable had 100% of the pension been commuted would be exempt from income tax.
  • Commuted family pensions are not taxed by the authorities. But the part that is given out in monthly or periodic instalments would be exempt by Rupees 15000 or one third of the amount received depending on which one is lesser.
  • UN employee families that receive family pension are not obliged to pay any income tax on that amount.
  • Family pensions received by relatives of armed forces personnel are also exempt from income tax.
Rates of income-tax for Senior Citizens between 60 and 80 years
1where the total income does not exceed Rs. 3,00,000Nil
2where the total income exceeds Rs. 3,00,000 but does not exceed Rs. 5,00,0005%
3where the total income exceeds Rs. 5,00,000 but does not exceed Rs. 10,00,00020%
4where the total income exceeds Rs. 10,00,00030%

 

Rates of income-tax for Senior Citizens between 60 and 80 years
1where the total income does not exceed Rs. 3,00,000Nil
2where the total income exceeds Rs. 3,00,000 but does not exceed Rs. 5,00,000Nil
3where the total income exceeds Rs. 5,00,000 but does not exceed Rs. 10,00,00020%
4where the total income exceeds Rs. 10,00,00030%

 

Deductions:

  • Section 89 of the Income Tax Act, 1961 provides relief to family pension beneficiaries who receive a commuted sum. If the commuted sum inflates the income tax rate for the assessment year, the Assessing Officer is bound upon receiving an application in this regard, to grant exemptions as above. Reference may be made, in such a situation, to Rule 21A and 21AA and the use of Form 10E for furnishing particulars.
  • Income tax deductions applicable to pensioners are the same as those for other categories of taxpayers. Click here to find out which ITR form needs to be filed for the purposes of filing tax returns.

Upon receipt and assessment by tax authorities you may obtain income tax refunds for if deductions and exemptions have been properly mentioned. CA assisted tax return efilings the best fit for you if you possess multiple sources of income.  AllindiaITR is one such online platform. Owned and promoted by Corwhite Solutions Private Limited, it is also the producer of one of the most successful efiling tax apps for smartphones in the country.

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