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RETIREMENT PLANS BUYING GUIDE
:1800-266-9777
Is pension taxable?
Table of Content
1. What are Commuted and Uncommuted Pensions?
2. Secure Your Retirement with Our Pension Plans
3. How Are Commuted and Uncommuted Pensions Taxed?
4. Taxability of Pension from Life Insurance Companies
5. Taxability of Pension for Senior Citizens
6. Taxability of Family Pension
7. Income Tax Rates for Individuals Above 60 Years
8. Tax Deduction at Source by Banks as per Section 194P
9. Conclusion
Yes. Pension is taxable. It is considered as income for taxable purposes. Income tax on pension is calculated according to the relevant income tax slab. However, if you have invested in a pension scheme, the premiums paid/contribution towards the plans are eligible for tax deduction, subject to the conditions specified under Income Tax Act, 1961.
What are Commuted and Uncommuted Pensions?
Upon retirement, when the regular income ceases, the pension becomes the major source of income. Understanding the different types of pensions and their implications is imperative before investing in retirement plans. Pensions are categorised based on the payout method as commuted and uncommuted. Under commuted pension, a part of the regular pension is paid out in lump sum. This is ideal for individuals who require a large amount for immediate needs. Uncommuted pension is where individuals receive a specific amount at monthly intervals.
Aspect |
Commuted Pension |
Uncommuted Pension |
Meaning |
Part of the pension for a lump sum upfront payment. |
Monthly payments. |
Periodicity of payment |
Lump sum payment |
At monthly intervals. |
Suitable for |
Individuals who seek upfront payment to meet immediate needs. |
Individuals who prefer a regular income stream. |
Taxation |
Eligible for partial or full exemption subject to terms and conditions. |
Treated as income and Income tax calculation is as per the applicable tax slab. |
Purpose |
For investments, expenses, or for clearing huge debts. |
For monthly sustenance. |
Secure Your Retirement with Our Pension Plans
How Are Commuted and Uncommuted Pensions Taxed?
The income tax on pension affects financial planning. The tax on pension depends on the type of pension. You can make a better decision regarding your retirement benefits if you are clear about the taxability of pension. The table below gives a clear picture of the taxability.
Taxability of Uncommuted Pension
The uncommuted pension payments you receive from your previous employer are classified as ‘Income from Salaries’ under the Income Tax Act, 1961, and are taxed at the slab rate applicable to you.
Taxability of Commuted Pension
If you’re a government employee, the commuted part of the pension (the lump sum amount) that you receive will be exempt from tax. However, the regular pension payouts you receive thereafter will be fully taxable under the head ‘Income from Salaries’.
If you’re a non-government employee, the income tax on your pension will vary depending on whether or not you receive gratuity payments along with your pension.
If you receive gratuity along with your pension
One--third of the commuted pension is tax-free, whereas the remaining two-thirds is fully taxable under the head ‘Income from Salaries’.
If you only receive a pension
50% of the commuted pension will be tax-free, whereas the remaining 50% will be fully taxable as salaried income.
Taxability of Types of Pensions |
||||
Uncommuted Pension |
Commuted Pension |
|||
Treated as income and fully taxable according to the relevant income tax slab. |
Government Employee |
Non-Government Employee |
||
- |
The commuted amount or the lump sum amount is fully exempted from tax |
Receiving Gratuity |
Not Receiving Gratuity |
Commutation of pension received from Life insurance company |
- |
- |
1/3rd of the pension amount the employee is entitled to receive is tax-free and remaining is taxed as salary |
1/2th of the pension amount the employee is entitled to receive is tax-free and remaining is taxed as salary |
Any payment received in commutation of pension as a lump sum on vesting (maturity) under a pension plan of a life insurance company is exempt under section 10(10A)(iii) |
Taxability of Pension from Life Insurance Companies
- Regular Pension from Pension or Annuity plans of Life Insurance companies would be taxable under the head “Income from Other Sources’.
- Premiums paid in a financial year towards pension/annuity plan for receiving pension from a fund are eligible for deduction under Section 80CCC# up to the limit of Rs. 1,50,000/- in a financial year.
- Any payment received in commutation of pension as a lump sum on maturity is exempt under section 10(10A) of the Income-tax Act, 1961#, subject to fulfilment of various conditions under the current income-tax law.
Taxability of Pension for Senior Citizens
Since pension payments are classified as salaries or as income from other sources, as the case may be under the Income Tax Act, 1961, they’re taxed at the income tax slab rates applicable to you.
OLD TAX REGIME
If you’re a senior citizen pensioner aged above 60 but below 80, the tax rates applicable to you are shown below.
Total Taxable Income Tax Rate under the Old Income Tax Regime (excluding cess and surcharge) Up to Rs. 3,00,000 Nil Rs. 3,00,000 to Rs. 5,00,000 5% above Rs. 3,00,000 Rs. 5,00,000 to Rs. 10,00,000 Rs. 10,000 plus 20% above Rs. 5,00,000 Above Rs. 10,00,000 Rs. 1,10,000 plus 30% above Rs. 10,00,000 If you’re a senior citizen pensioner aged above 80, the tax rates applicable to you are shown below.
Total Taxable Income Tax Rate under the Old Income Tax Regime (excluding cess and surcharge) Up to Rs. 5,00,000 Nil Rs. 5,00,000 to Rs. 10,00,000 20% above Rs. 5,00,000 Above Rs. 10,00,000 Rs. 1,00,000 plus 30% above Rs. 10,00,000 NEW TAX REGIME
If you’re a senior citizen pensioner the tax rates applicable to you are shown below:
Total Taxable Income Tax Rate under the New Income Tax Regime (excluding cess and surcharge) Up to Rs. 3,00,000 Nil Rs. 3,00,000 to Rs. 6,00,000 5% above Rs. 3,00,000 Rs. 6,00,000 to Rs. 9,00,000 Rs. 15,000 plus 10% above Rs. 6,00,000 Rs. 9,00,000 to Rs. 12,00,000 Rs. 45,000 plus 15% above Rs. 9,00,000 Rs. 12,00,000 to Rs. 15,00,000 Rs. 90,000 plus 20% above Rs. 12,00,000 Above Rs. 15,00,000 Rs. 1,50,000 plus 30% above Rs. 15,00,000 Note: These tax rates are applicable for the financial year 2023 - 2024.
Taxability of Family Pension
Family Pension paid as regular monthly income (uncommuted pension) by the employer to a family member of an employee in the event of his/ her death is taxed under the head “Income from Other Sources’ in the hands of a family member. Family Pension is taxable after allowing a deduction of 1/3rd of the uncommuted pension received or Rs.15000, whichever is less under section 57(iia).
Income Tax Rates for Individuals Above 60 Years
Senior citizens can plan their finances efficiently if they understand the income tax on pension. The table below gives an insight into the old regime and the new regime slab rates. Accordingly, they can calculate the tax and choose the beneficial one.
OLD Income Tax Regime |
NEW Income Tax Regime |
||
Income Tax Slab |
Income Tax Rate |
Income Tax Slab |
Income Tax Rate |
Upto Rs. 3,00,000 |
Nil |
Upto Rs. 4,00,000 |
Nil |
Rs. 3,00,001 to Rs. 5,00,000 |
5% above Rs. 3,00,000 |
Rs. 4,00,001 to Rs. 8,00,000 |
5% above Rs. 4,00,000 |
Rs. 5,00,001 to Rs. 10,00,000 |
Rs. 10000 + 20% above Rs. 5,00,000 |
Rs. 8,00,001 to Rs. 12,00,000 |
Rs. 20,000 + 10% above Rs. 8,00,000 |
Above Rs. 10,00,000 |
Rs. 1,10,0000 + 30% above Rs. 10,00,000 |
Rs. 12,00,001 to Rs. 16,00,000 |
Rs. 60,000 + 15% above Rs. 12,00,000 |
Rs. 16,00,001 to Rs. 20,00,000 |
Rs. 1,20,000 + 20% above Rs. 20,00,000 |
||
Rs. 20,00,001 to Rs. 24,00,000 |
Rs. 2,00,000 + 25% above Rs. 20,00,000 |
||
Above Rs. 24,00,000 |
Rs. 3,00,000 + 30% above Rs. 24,00,000 |
||
Tax Deduction at Source by Banks as per Section 194P
Section 194P enforces the banks to deduct tax on senior citizens of more than 75 years of age who have only pension and interest income from the bank. Such senior citizens are also exempt from filing income tax returns if pension income and interest income are their only annual income source.
Conclusion
Pensions are designed to provide you with a stable source of income during your post-retired life. With prices of goods and services rising due to inflation, the pension provided by your employer may not be enough. In that case, you can consider investing in a pension scheme. The guaranteed income from such a plan combined with your employer’s pension should enable you to live a carefree and comfortable post-retirement life.
FAQs on Income Tax on Pensions
Q: What is the income tax slab for pensioners?
Pensioners' income tax slab in India is determined by their age and the tax system they select. Senior citizens (those in their 60s to 80s)are excused from taxes up to a basic limit of Rs. 3 lakh, while super senior citizens (those in their 80s and beyond) were exempt up to Rs. 5 lakh.
The tax rate rises gradually as income does. The base exemption level under the new tax regime is Rs.3 lakh for all age categories, with varying tax slabs being applied. Remember that there may be extra deductions and levies, so for accurate estimates, it's best to speak with a tax specialist.
Q: Will I receive a Form 16 on pension income taxable as salary?
Pension income taxation depends on whether you receive a lump sum amount (commuted pension) or installments spread throughout time (non-commuted).
Uncommuted Pension i.e regular monthly pension/annuity is always taxable for all types of taxpayers and is subject to taxation based on the applicable income tax slabs. The amount received periodically is added to your total income for the year, and taxes are levied accordingly. Form 16 shall be received from the Employer on deduction of TDS on the regular pension amounts paid.
Income tax Implications on Commuted pension or lump sum pension is as below -
For Government Employees: Fully Exempt
For Non Government Employees:
1. Employee receives both Gratuity & Pension: Assuming 100% pension is commuted, 1/3rd of the pension amount is exempted & remaining is taxed as salary.
2. Employee does not receive Gratuity i.e. only pension is received :Assuming 100% pension is commuted, ½ of the pension amount is exempted & remaining is taxed as salary
3. Commuted pension received from a life insurance company will be exempt from tax, subject to fulfillment of conditions specified.
Q: Is TDS deducted from the pension?
Yes, pension income is often subject to TDS (Tax Deducted at Source) deductions. There are certain exceptions, though. Under Section 192 of the Income Tax Act, a retired employee's regular pension is liable to TDS. The person who pays the pension, either the bank or the employer, is in charge of deducting TDS.
Family pensions are not subject to TDS when they are given to a dead pensioner's dependent children or spouse. Furthermore, under some circumstances, some amounts of commuted or lump sum pensions may also be free from TDS.
TDS is not deducted from regular pension received by an Indian Resident, under a pension plan of a life insurance company
Q: How to calculate income tax for pensioners in India?
In India, there are several considerations to consider while calculating senior citizens’ income tax. The amount of pension income is taxed ina standard deduction of Rs.50,000 shall be available. Furthermore, Section 80 TTB exempts interest income on deposits up to Rs. 50,000. Higher exemption limits and deductions, such as those for Section 80D health insurance premiums, are also advantageous to senior persons.
You arrive at taxable income by deducting allowable expenses from your total income. This income is then subject to tax at the senior citizen's appropriate slab rates. For exact computations based on unique circumstances, it is advised to visit the website of the Income Tax Department or a tax expert.
Q: Is it mandatory to file ITR for pensioners?
No, filing an ITR is not mandatoryof all pensioners. If a 75-year-old pensioner submits a statement to their bank, they may be excluded if their only source of income is interest and pension from that one bank, which is below the threshold limit.. After that, this bank will deduct TDS. Pensioners under 75 years old or those whose income exceeds the basic exemption level, however, are required to file an ITR. A return must also be filed by anybody requesting tax refunds or deductions.
Q. Under which head is Pension taxable?
The regular pension is taxable under the head ‘Income on Salary’ and the family pension is taxable under the head ‘Income from Other Sources’. Pension received from a pension plan of a life insurance company is taxable under the head “Income from Other Sources”
Q: Any deduction is available from family pension?
Income chargeable under the head "Income from other sources" for family pension shall be computed after making a deduction of a sum equal to thirty-three and one-third per cent of such income or Rs 25000, whichever is less. However, such deduction is only available when taxpayer has opted for Old Tax Regime.
Related Article
- Income Tax Slabs FY 2023-24
- Features and Benefits of HDFC Life Systematic Retirement Plan
- Vesting age for retirement plans: Meaning and benefits
- Features and Benefits of HDFC Life New Immediate Annuity Plan
- 5 Tips To Make The Most Out Of Your Retirement
- 5 Mistakes To Avoid After Your Retirement
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Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.
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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.
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Tax benefits are subject to conditions under Sections 80C, 80D, Section 10(10D) and other provisions of the Income Tax Act, 1961.
Provided all due premiums have been paid and the policy is in force.
Note- Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.
ARN- ED/03/25/22337
