Many older people depend on their pension following retirement. Understanding the tax rate on pension income is crucial, even though it provides financial assistance. Understanding the tax laws will enable you to avoid surprises during tax filing and better plan.
Is taxable pension income?
Indeed, in India pension income is liable for taxes. Treating it as “salary income,” the Income Tax Department handles. Your pension is thus included to your total income and taxed similarly, much as your regular pay.
Kinds of Pension and Their Tax Treatment
Let’s examine the two primary forms of pensions together along with their tax treatment:
1. Uncommuted monthly pension (pension)
You get a consistent monthly pension here.
- It is totally taxable as salary income.
- Your income tax slab dictates the tax you pay.
2. Lump-sum commuted pension
This is a one-time payment out of your pension.
- Tax treatment relates to your employment:
- Employees of the government: totally tax-free
- Those not employed by government agencies:
- Should you receive gratuity, one third of the total is tax-free.
- Should not a gratuity exist, half of the total is tax-free.
- Should you receive gratuity, one third of the total is tax-free.
- Employees of the government: totally tax-free
The pension income tax rate is what?
There is no pension specific tax rate. Under the previous tax system, the tax rate on pension income was the same as it was for any other income:
- Income between ₹2.5 lakh: Nil
- ₹2.5 lakh – ₹5 lakh: 5%
- ₹5 lakh – ₹10 lakh: 20%
- Above ₹10 lakh: thirty percent
- Senior citizens (60 to 80 years): ₹3 lakh basic exemption
- Super Senior Citizens (80+ years): ₹5 lakh basic exemption
Are You able to claim deductions?
Indeed. Section 80C offers pensioners tax-saving choices ranging from ₹1.5 lakh for investments including PPF, LIC, etc.
- Section 80D: Premium of health insurance
- Standard Deduction: ₹50,000 accessible for pension income also
Rapid Advice for Pensioners
- Declare your pension income always when submitting ITR.
- Select the proper tax system.
- Send Form 15H/15G to prevent TDS should income be less than the taxable limit.
- Cut your taxable income with deductions.
Last Consideration
Pensioners can better manage their money if they are aware of the tax rate on pension income. Although pension is a benefit for your service, you still have to manage it sensibly for a stress-free retirement.
