For their monthly needs, many Indian retired persons rely on pensions. The tax on pensions, however, is a topic that is frequently unclear. Should you or a family member be receiving a pension, you should be aware of when and how it is taxed.
Describes a pension here.
A pension is a consistent payment made to a retired employee by either a public or private company. It is a thank you for the years of service they have rendered. One can get it lump sum or monthly.
Is Indian Pension Taxable?
Indeed, in India tax on pensions is relevant. But your total income in a year and the type of pension you have will determine how much tax you pay.
Pensions come in two varieties:
- Uncommuted pension is
This is your monthly pension following retirement. Under head “Income from Salary,” it is totally taxable. - Commuted pension
Rather than monthly pensions, a commuted pension is a lump sum taken in advance. Depending on who offers it, it is either totally or partially exempt:
- Should you work for the government, it is totally tax-free.
- Should you be a non-government employee, it is only partially tax-free.
- Should you work for the government, it is totally tax-free.
Who bears pension tax obligations?
- If you receive a monthly pension (uncommuted), you will be subject to tax on pensions.
- You retired non-governmentally and received a commuted lump sum pension.
How might one save taxes on pensions?
Your tax on pensions can be decreased in a few legal ways:
- For investments including PPF, LIC, etc., apply deductions under Section 80C.
- Pay medical insurance premiums from Section 80D.
- Use senior citizen slabs with better exemption limits.
Key Points to Remember
- After the pensioner dies, pension received by family members—including spouse—is taxed under “Income from Other Sources”.
- Verify always whether your company or bank is correctly taxing the pension.
- On time filing your income tax return will help you avoid fines.
Final Thoughts
The tax on pensions in India is not well understood by many people. Knowing it will enable you to lower your tax load and better arrange your retirement. Correct knowledge and planning will help you maximize your pension without sacrificing too much to taxes.
