Tax treatment of Pension  Pension is a retirement benefit. Since this is payable to an employee or to his dependents by virtue of past e...
Tax treatment of Pension
Pension is a retirement benefit. Since this is payable to an employee or to his dependents by virtue of past employment, this is taxed as salary in the hands of the employee. Tax is deductible on pension income under section 192 of Income Tax act on payment .

However, family pension received by the dependents of the employee will be taxed under the head income from other sources as there is no employer employee relationship between the payer and payee. TDS is not deductible on family pension as it is not covered under section 192 of the Income tax act.

The provisions under Income Tax is enumerated below:-

Example: 1

Mr. X retires from Govt service as on May 31, 2012. He gets pension of Rs. 15,000 per month up to December 31, 2012. With effect from January 1, 2013, he gets One third of his pension commuted for Rs. 10,00,000 . He is not in receipt of Gratuity.

Solution:-

Uncommuted pension [ periodical payments] is always chargeable to tax. Commuted pension is exempt from tax in the case of Government Employees. Therefore, commuted pension of Rs. 10,00,000/- is exempt. The amount of taxable uncommuted pension is calculated as under:

Uncommuted pension June 1 to Dec 31, 2012 = Rs.1,05,000/- [ ie Rs. 15000 x 7 ].

Uncommuted pension Jan 2013 to March 2013 = Rs. 30,000/- [Rs. 15,000 x 2/3 x 3].

Total amount of uncommuted pension chargeable to tax = 1,35,000 /-

Example: 2

Mr. X retires from ABC Ltd as on June 30, 2012. He gets pension of Rs. 20,000 per month up to Jan 31, 2013. With effect from Feb 1, 2013, he gets 60% of pension commuted for Rs. 10,00,000/-. He also received Gratuity of Rs. 50,000/- up on his retirement.

Solution:-

A]. Uncommuted Pension :-

July 2012 to Jan 2013 @ Rs. 20,000/ Month = 1,40,000/-
Feb 2013 to March 2013 @ Rs. 20,000/ Month x 40% = 16,000/-
[ since 60% is commuted, only remaining 40% will be received monthly].

Total amount of uncommuted pension for the year 12-13 = 1,56,000/- [ 1,40,000 + 16,000]

B]. Commuted Pension :-

Amount of commuted Pension = Rs.10,00,000/- [ being 60%]
Therefore full value of commuted pension = 10,00,000 / .6 = 16,66,667/-

As Mr. X receives gratuity, 1/3 of full vale of commuted pension is exempt from tax ie; 16,66,667 X 1/3 = 5,55,556 is exempt from tax, hence the taxable amount of commuted pension = commuted pension received minus pension exempted Ie; 10,00,000- 5,55,556 = 4,44,444 is taxable

C]. Total amount of taxable pension for the p/y 2012-13 = 1,56,000 + 4,44,444 = 6,00,444 /-

By :CMA Sugunan.t.g.

BLOGGER: 5
1. Hi, my widow mother is receive family pension of Rs. 28000 per month. Other than that she has received 3.5 lakhs from FD interest on which Rs. 35,000 TDS was deducted, she also pays 25k as LIC premium which is in her name. I have not filed ITR becuase as per my understanding I have no tax liability towards government. Please clear my doubt in this regard.Do I need to pay tax or would I get some amount of money refunded for TDS deduction against FD. Please explain in detail for proper understanding.

1. Your mother total income will be calculated as under(assume age above 60)

1) family pension =28000*12=336000
Less :deduction =15000
Family pension taxable =321000
2) FDR Income =350000
Total=671000
less : Saving u/s 80C Lic=25000
Net taxable Income =646000
Tax on above =
300000-500000=200000 x 10 %=20000
500000-646000=146000 x 20%=29200
Total tax =49200
Cess=1476
Total tax =49200+1476=50676
Less :Tds by bank =35000
Net tax payable =15676

So not only you should deposit balance tax but also file return

2. Excellent suggestion... Thnks A lott..!!

3. HI, MY BROTHER INLAW IS RETIRED FROM AIR FORCE AND GETTING PENSION, FROM HIS TOTAL PENSION AMOUNT RS. 2148.00 DEDUCTED AS COMMUTATION DEDUCTION PER MONTH AND RETAINED BY GOVERNMENT. IT IS SAID THAT AFTER 15 YEARS OF RETIREMENT HE WILL GET FULL PENSION BECAUSE OF THIS DEDUCTION. MY QUERY IS THIS COMMUTATION DEDUCTION OF RS. 2148.00 PER MONTH FROM HIS PENSION CAN BE TREATED AS SAVINGS UNDER SECTION 80C (AS BECAUSE HE DID NOT RECEIVED IT IN HIS HAND AND IS WITH GOVERNMENT) OR NOT.

4. No, Because it is against commute value who already got by him,at the time of retirement.
It is like as repayment of personal loan.

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SIMPLE TAX INDIA: Tax Treatment of Pension ,Commuted pension under Income Tax Act
Tax Treatment of Pension ,Commuted pension under Income Tax Act