Once you retire, your primary income comes from a pension. You did know, though, that it is also taxable? Knowing the pension tax rate will help you to properly allocate your money, prevent surprises, and legally save taxes.
Let us simplify it for you.
What is a pension?
Your regular payment following retirement is pension. It might originate from:
- Government or commercial company
- Pension funds—such as NPS or EPF
- Annuities and self-funded retirement plans
Though it is retirement income, it is not totally tax-free.
Does pension taxable apply?
Surely. Under the Income Tax Act, pension is seen in India as salary income. You have to pay taxes on it using the income tax slab rates relevant to you.
Pension Tax Rate (FY 2024–25)
Income Range | Tax Rates
Up to ₹ 2.5 lakh | 0%
₹ 2.5 lakh – ₹ 5 lakh | 5%
₹ 5 lakh – ₹ 10 lakh | 20%
Over ₹ 10 lakh | 30%
Senior citizens (between sixty and eighty years) are exempt up to ₹3 lakh.
Those who are super senior—that is, 80+ years—are exempt up to ₹5 lakh.
Rebate under Section 87A applies if total income is less than ₹5 lakh (no tax).
Various Pension and Tax Treatments
- Uncommuted Monthly Pension Received Monthly
- Treated as pay for income
- Totally taxable according to slab
- Treated as pay for income
- Lump Sum Payment Commuted Pension
- Taken at retirement as a one-time lump sum
- Totally free for staff members of governments
- Partially exempt for the private sector (based on gratuity; up to 1/3rd or 1/2nd)
- Taken at retirement as a one-time lump sum
- Annuity Derived from Pension Schemes
- Monthly income drawn from private pension or LIC funds
- Fully taxable as “Income from Other Sources”
- Monthly income drawn from private pension or LIC funds
Pension Use Tax Saving Strategies
- Section 80C: Look at tax-saving choices including insurance, ELSS, or PPF.
- Apply Section 80D: Deduct health insurance premiums
- See Section 80TTB for benefits if you are a senior citizen (up to ₹50,000 on interest income).
Should you file ITR as a pensioner?
Indeed, if your overall income—including pension—exceeds the basic exemption limit:
- ₹2.5 lakh (common people)
- ₹ 3 lakh (senior citizens)
- ₹ 5 lakh, super senior citizens
Filing an ITR benefits even if your income is below these levels in:
- Declaring TDS refund
- Maintaining financial documentation
- Simple visa processing or loan approvals
In essence, conclusion
Every Indian retiree must know the pension tax rate. Monthly pension is taxed similarly to a salary; pension is not totally tax-free. But you can lower your tax and enjoy a stress-free retirement with careful planning and use of current deductions.
