How to calculate exemption on Pension Income

How to calculate exemption on Pension income

Exemption on Pension Income

There are two type of pension viz; Commuted and Uncommuted Pension. Treatment of both type of pension is different as per section 17(1)(ii) of Income Tax Act,1961. Normally pension is paid after death or retirement of employee by his/her employer as monthly payment but when employer pays any lump sum payment, it is known as commuted pension. Treatment of  Exemption on both type of pension is as under:

Uncommuted Pension:

For Government or non-Government employee, uncommuted pension is fully taxable.

Commuted Pension:

1.       Commuted pension received by employee of local authority, Government organisation or statutory corporation under Civil Pensions (Commutation) rules of the Central Government or under any other similar scheme is wholly exempted from tax as per Section 10(10A)(i). Also in following cases pension is exempted from Tax.

  1. Pension received from UNO by employee or his/her family members
  2. Judges of High Court and Supreme Court
  3. Family pension received by family members of armed forces.

 2.       Commuted pension received by any other employee:

  1. Employee receive Gratuity also: In case employee receive gratuity along with pension, commuted value of one-third of pension which normally he/she is entitled to receive is exempt from tax
  2. Employee doesn’t receive Gratuity: Commuted value of one-half of such pension is exempt from tax.

When pension amount received by employee exceed exemption limit as mentioned above, such exceed amount is liable to tax when it is due or paid.

Family pension received by family members of employee is taxable in the hands of recipients under head “Income from other Sources “and not under head “Income from Salary”.

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5 comments on “How to calculate exemption on Pension Income
  1. Sachinder Kumar says:

    I am retired from Indian Air Force and in receipt of service pension. Is the income from this pension is exumpted from Income Tax ?

    • Admin says:

      Uncommuted Pension:

      For Government or non-Government employee, uncommuted pension is fully taxable.

      Commuted Pension:

      1. Commuted pension received by employee of local authority, Government organisation or statutory corporation under Civil Pensions (Commutation) rules of the Central Government or under any other similar scheme is wholly exempted from tax as per Section 10(10A)(i).

  2. Vijaya says:

    Hello Sir,

    My Father was a government servant and after his death my Mother gets family pension , she is not a senior citizen yet. We don’t have any other income other than Family Pension . My mother gets Rs.23000 as a family pension ; will she still have to pay the tax ?
    and she has some Fixed Deposits in the bank too , are they also taxable ?

  3. Dr. B.K.Nath says:

    Dear Sirs,
    I was a Govt College Principal, retired on 31.12.2015.

    As per Bank, I receive a Pension of Rs. 35,890 + DR 42,710 + Medical Rs. 500 = Total Rs. 79,100.00
    Out of which Rs 14,356.00 is deducted as commuted + Rs. 5,298.00 deducted as Income tax.
    Finally, a Total of Rs. 59,446.00 is deposited in my Bank Account every month.
    Kindly explain whether the Pension amount Rs. 35,890 or Rs. 21,534 (35,890.00-14356.00) will be added together to arrive at the Taxable income along with DR & Medical Allowances?
    And what will be my Pesion after 7th Pay Commission.

    My 6th CPC Pay Bands and Grade Pay are (37400-67000) GP -10000
    Emoluments Last Drawn[BP+AGP ]=Rs.71,780(Rs.61,780 + Rs.10,000)
    Thanking you sir.

    Dr. B.K.Nath, Retired Principal, Guwahati, Assam.

  4. H. C. Boruah says:

    I was retired Prof of an University. My pension amount Rs.35,800 +DA 42,710 +Medical Rs. 500 = Rs.79,100 per month
    Out of which Rs.9,167 is deducted as less commuted value. whether Rs. 9,167 will come under income tax deduction?

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