Tax Treatment of Pension

Tax Treatment of Pension in different cases is given below :-

1. Pension is received from United Nation Organisation( UNO)

• It is not chargeable to Income Tax.

2. Family Pension received by the family members of armed forces 

• It is exempt u/s 10(19) in some cases

3. Family Pension received by family members in other cases 

• It is taxable in the hands of the recipients u/s 56 under the head “Income from other sources”. Standard Deduction is available u/s 57 which is 1/3rd of such pension or Rs.15000, whichever is lower.

4. Pension in the case of an employee (received by the employee during his lifetime) who has joined the Central Government or any other employer on or after January 1, 2004 

• New Pension Scheme is applicable to new entrants to Government Service or any other employer. As per the scheme, it is mandatory for persons entering the service on or after January 1, 2004, to contribute 10 percent of salary every month towards their pension account. A matching contribution is required to be made by the employer to the said account. The tax treatment under the new scheme is as follows:-

1. Contribution by the employer to the notified pension scheme is first included under the head “Salaries” in the hands of the employee.
2. Such contribution is deductible (to the extent of 10 percent of the salary of the employee) u/s 80CCD.
3. When pension is received out of the aforesaid amount, it will be chargeable to tax in the hands of the recipient.
4. No deduction will be allowed u/s 80C in respect of amounts on which deduction has been claimed u/s 80CCD.
5. Salary for the above purpose includes Dearness Allowance, if the terms of employment so provides, but excludes all other allowances and perquisites.
6. vi.The aggregate amount of deduction u/s 80C, 80CCC & 80CCD cannot exceed Rs.1, 00,000/-.

5. Pension received by the employee during his lifetime, in any other case (Sec. 17(1) (ii))

• Uncommuted pension is taxable as salary u/s 15 in the hands of the Government employee as well as a Non-Government employee.
• Any commuted pension received by an employee of the Central Government, State Government local authority or statutory corporation is wholly exempt from tax u/s 10(10A)(i).

- Rittique Phukan (CA)