CloudFare image
Support support image
Name is required.
Please enter valid Name.
Email ID is required.
Please enter valid Email.
Phone Number is required.
Please enter valid Phone Number.
Message is required.
Submit

Faster, easier and secure gateway to e-file income tax return

Heading IncomeTax icon

Calculation of Income Tax for Pensioners in India

Section 60 of the Civil Procedure Code (CPC) and section 11 of the Pension Act describe Pension as a Periodical allowance or stipend which is granted because of past services rendered to an organization or merits.

There are mainly three important features of Pension:

  • It is a compensation which is given for the past services rendered by an employee.
  • It owes its origin to an employer-employee relationship or master-servant relationship.
  • It is paid based on the earlier relationship of an agreement of service as opposed to an agreement for service. This kind of relationship terminates only on the death of the employees.

An employee can take Pension as a lump sum amount called Computed Pension instead of periodical payments.

The pension which is received from a former employer is taxable under salary. Hence, there are various deductions available on salary incomes which are applicable for pensioners as well.Pension given to the officials of UNO is exempted from taxes. As per Section 2 of the UN (Privilege and Immunities) Act, 1947 salaries or emoluments paid to UN Officials are tax exempted. Pension received by the family members of Armed Forces is also exempted from taxes.

Income from Family Pension

As per the Section 57 of the Employees Pension Scheme, 1971 Family Pension is defined as the monthly amount payable by an employer to a family member of a former employee in the event of his/her death. Both pension and family pension are qualitatively different. The pension is paid during the lifetime of an employee and family pension is paid on the death of the employee to the surviving members. There is no employer-employee relationship in case of family pension between the payer and payee; hence it is taxable under the head “Income from Other Sources” from the hands of the nominee.

Which ITR Form to be filed?

ITR-1 is the form which is used by an individual who has an income from salary, house property and income from other sources. This form can be used by pensioners to file their Income Tax Return (ITR). This form is used by taxpayers who have an income from salary, one house property and from other sources in addition to the pension income.

Calculation of Income Tax for Pensioners

Pension can be classified as a computed and uncomputed pension. Computed pension is the amount which is received in advance or amount which is received in a lump sum. An employee can decide at the time of retirement whether he/she wants to get his pension computed or uncomputed.

For example, at the time of retirement (age 60), an employee decided to compute 10% of his monthly pension (upon Rs. 20,000) in advance for the next 10 years. The 10% of the total pension of 10 years will be given in advance as lump sum amount.

Therefore, 10% of Rs. 20,000 x 12 x 10 = Rs. 2,40,000 will be the computed pension. The employee will receive the remaining 90% of Rs. 20,000 i.e. 18,000 as a monthly pension, for the next 10 years until he is 70. After 70 he will receive his full un-computed pension of Rs. 20,000 every month.

Taxation of Un-computed Pension: Un-computed pension is fully taxable under taxation of salary. In the above example, the Rs. 18,000 received by an employee before the age of 70 and Rs. 20,000 after 70 are fully taxable.

Taxation of Computed Pension: Computed pension is exempted from tax in certain cases. Computed pension received by a government employee is fully exempted. As for a non-government employee, it is partially taxed and partially exempted. 1/3rd of the amount of pension is exempted from tax and the remaining pension is taxed as salary if a non-government employee receives gratuity along with a pension. In case if a non-government employee, doesn’t receive any gratuity then ½ of the amount of pension (provided 100% is computed) is exempted and remaining part of the pension is taxed.

Taxation on Family Pension: Pension received by any family member on behalf of the employee is taxable under the head “Income from other sources” as per the I-T Act. If the pension received is the computed amount then it will not be taxable but the un-computed pension received by a family member is exempted only to a certain extent i.e. Rs. 15,000 or 1/3rd of the un-computed pension, whichever is less. For example, if the un-computed pension received by a family member is Rs. 1,00,000, then the exemption amount will be the least of Rs. 15,000 or Rs. 33,333 (1/3rd of 1,00,000). Thus, the taxable amount will be Rs. 85,000 (1,00,000-15,000).

The pension is taxed under the head salary and family pension is taxed under Income from Other Sources. Both incomes are taxed according to the normal income tax slab rate as per the age of the employee i.e. it will be between 60-80 or above 80 years.

The slab rates for charging tax are as follows:

Income tax slab rate for senior citizens (above 60 and less than 80) for the financial year 2017-18.

Income Slab Tax Rate
Income up to Rs. 5,00,000 No Tax
Rs. 5,00,000-10,00,000 20%
Above Rs. 10,00,000 30%

Surcharge:

  • 15% of Income Tax whose total income exceeds Rs. One Crore.

Cess:

3% of the total income tax and surcharge calculated.

Income tax slab rate for super senior citizens (above 80 years) for the financial year 2017-18

Income Slab Tax Rate
Income up to Rs. 300000 No Tax
Rs. 3,00,000-5,00,000 5%
Rs. 5,00,000-10,00,000 20%
Above Rs. 10,00,000 30%

Surcharge:

  • 10% of Income Tax individuals whose total income are above Rs. 50 Lakhs and below Rs. 1 crore.
  • 15% of Income Tax whose total income exceeds Rs. One Crore.

Cess:

3% of the total income tax and surcharge calculated.

Frequently Asked Questions

Q. Is it mandatory for the pensioner to open a separate pensioner account for getting his/her pension in the authorized bank?
No, it is not necessary for the pensioner to open a separate pension account. Pensioner can receive pension to his/her existing account maintained with the branch, selected by the pensioner.
Q. Can a joint account be open by a pensioner with his/her spouse?
Yes, a pensioner can open a joint account with his/her spouse.
Q. What is the minimum balance that is required to be maintained in the Pension account by the pensioner?
There is no strict regulation by RBI to maintain a minimum balance. Individual banks have their own rules regarding the minimum balance. Some banks have also permitted zero balance in the pensioner’s Account.
Q. Who can avail the family pension?
Family pension is given to the person indicated in the Pension Payment Orders (PPO) on the receipt of a death certificate and application from the nominee.