Income Tax for Pensioners on Pension Amount

 What is Pension?

Pension is described in Section 60 and Section 11 of the Pension Act as a periodical allowance or stipend granted on account of past service, particular merits, etc.

It involves three essential features, firstly, pension is a compensation for the past service, secondly, it owes its relationship to a past employer-employee relationship or master servant relationship. Lastly, it is paid on the basis of earlier relationship or agreement of services as opposed to an agreement for ongoing service.

Pension received from a former employer is taxable as salary. As such the relevant provisions of TDS as specified in Section 192 and other relevant provisions are also applicable to pension income and tax is deductible on the same, as in the case of payment of salary.

How the Income Tax is collected on Pension Amount?

As already seen, TDS is the best medium of collecting income tax from the citizens without much of hassles, as the responsibility to deduct tax is not on the government, but on citizen-payers. Tax department accords a lot of importance to TDS as a source of generating revenue and to administering the TDS provisions more vigorously. That is why several different payments and all persons making such payments have been covered within the ambit of TDS provisions and the scope for the same is being increased day after day.

After the implementation of Sixth Pay Commission recommendations, substantial arrears were paid to the pensioners through nationalized banks. Because of this several pensioners who were earlier receiving pension amount less than Annual Income Exemption Limit may now be subjected to tax during this year as well as in future years due to increase in the monthly pension amounts. While conducting concurrent audit of banks, the issue of applicability of TDS provisions on such pension payments seems to have come up for consideration.

This article is an effort to make the reader understand the TDS provisions on pension payment, its applicability & implications.

How the Taxation on Pension does get implemented?

Before we discuss the TDS provisions applicability on the pension payments, it is pertinent to discuss the scheme of taxation for the pension. The provisions for taxation of Pension under the Income Tax Act, 1961 may be summarized as explained underneath.

Regular Pension

The common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal and / or contractual terms.

Exemptions available, if any

Yes. The Section 10(18)(i) Stipulates that Pension amounts received by any individual who is in receipt of Param Vir Chakra, Maha Vir Chakra or other gallantry awards from Central or State Government are fully exempt from Income Tax.

Except for above mentioned exemption, pension amount is taxable in all cases. It is taxable under Income from Salary as Section 17(1) (ii) defines salary to include pension as well.

Special Exemption Category

Pension to officials of UNO is exempt from taxation. Section 2 of the UN (Privilege & Immunities) Act, 1947 grants tax exemption to salaries / emoluments paid by U.N. The Karnataka High Court had held that u/s 17 of the Indian Income Tax Act, salary has been defined as including pension, and therefore, if salary received from UN is exempt, so shall be the pension. This decision was accepted by the CBDT, and is in force. This also makes it clear that employees of UN are exempt from Income Tax on Salaries too.

Commutation of Pension

commutation of Pension means payment of lump sum amount in lieu of a portion of pension surrendered voluntarily by the pensioner based on duration of period in relation to the age.

Exemptions – Under Sections 10(10A) (i) (ii) and (iii)

(i) Commutation of pension under Civil Pensions (Commutation) Rules or under any other scheme for Central, State or Local Authority employees

(ii) For employees of nongovernmental employers, 1/3rd or ½ of full value of pension is exempt depending upon the fact whether gratuity has also been paid to such person or not.

(iii) Commutation of pension from fund under section 10(23AAB)

Excess amount received, if any, over and above the limits specified u/s 10(10A) above is taxable under the head Income from Salary.

From the above it is very clear that pension annuity is generally taxable while commutation of pension may be exempt from tax. Further, pension annuity is taxed under “Income from Salary”. Thus, question of TDS will arise only in respect of taxable pensions & not on exempt pension income for obvious reasons.

With this, let us move now move on to discuss the TDS applicability.

TDS provisions on Pension

Chapter XVII-B of The Income Tax Act, 1961 contains the provisions relating to Tax Deduction at source (TDS). The very first section, i.e. Section 192 is TDS on Salary. Since we have already mentioned that Pension annuity is taxed under Income from salary, let us study this section to find whether it covers pension as well.

Section 192 (1) of the Income Tax Act states that – “Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.”

As it is clearly stated in the above Section of Indian Income Tax, one can easily understand that the section applies to any income chargeable under the head “Salaries”. Annuity pension as discussed above is covered by the definition of salary u/s 17 (1) (ii), so the TDS provisions u/s 192 are applicable to Annuity pension payments as well.

Moving ahead from here, you may kindly note that the section vests the responsibility on “Any person responsible for paying any income chargeable under the head “Salaries”.  The wordings clearly indicates that it is the “person responsible for paying” who has to comply with the TDS provisions & thus such person may not always be the past employer. It implies that the banks, which disburse the pension amount, are also under the ambit. This was clearly indicated by us in the fourth para of this article.

In this connection, Section 204(i) is relevant which defines “person responsible for paying”. It states that  “person responsible for paying” in the case of payments of income chargeable under the head “Salaries”, other than payments by the Central Government or the Government of a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof.

By now It is clear that it is the past employer who may be the “person responsible for payment’ in case of non-government pensioners, while as far as Central and State Govt. pensioners are concerned it is the nationalized banks which have been entrusted with the task of payment of pension which are considered as person responsible for payment. 

Note

In cases where companies have entered into contract with the Insurance companies (called as superannuation plans) for payment of pension, then such Insurance Company will become the person responsible for payment and has to comply with the TDS provisions. 

Implication of TDS on Pension Annuity - (for pensioners)

Having understood that Pension Annuity is subjected to TDS u/s 192(1), by past employer or Insurance companies, as the case may be for non-govt. pensioners and nationalized banks in case of govt. pensioners, let us now discuss its applicability and implementation methods.

When TDS will be applicable on Annuity Pension?

When the pension annuity (Annuity as a terminology is used by the Indian Income Tax Authorities. For simple understanding, it is nothing but Annualized amount of the monthly pension) for the year exceeds the maximum exemption limit for the relevant financial year. (e.g. – In case of men below 65 years Rs. 1.60 Lacs, women below 65 years Rs. 1.90 Lacs & Senior Citizens – Rs. 2.40 Lacs for F.Y. 2009-2010) (Incidentally it is also the Income Tax Exemption Limit for Financial Year 2009 -2010. You may read about it in detail from this Article).

While working employees submit the proofs of investments u/s 80 C, 80 D etc. to their employers to reduce / avoid TDS, can pensioners also submit the same to “person responsible for payment” which includes nationalized banks as well?

Yes off course. How there can be partiality or selective treatment between existing employees vis-à-vis retired persons? The procedure to be followed once Section 192 is applicable will be the same irrespective of the fact whether it is salary or it is pension. CBDT generally issues circular every year explaining procedure to be followed & compliances to be done u/s 192 of the Income Tax Act, which states that pensioners can submit such proofs to person responsible for payment including to the banks.

Can a pensioner submit the Form 15G / 15 H or other declaration for non-deduction of TDS from pension payments?

No. The reason is, the declarations with form 15G / 15H etc. are prescribed by section 197A of The Income Tax Act, 1961 but it is does not cover TDS u/s 192. So where pension / arrears exceed the maximum exemption limit after permissible chapter VI A deductions & / or Relief u/s 89, banks & other persons responsible for payment are duty bound to deduct tax at source.

After deduction of Tax at source from payment, pensioners are expected to receive TDS certificate in which from – whether Form 16 or Form 16 A?  

Yes. Once tax has been deducted under section 192 of the Income-tax Act, 1961, the tax-deductor is bound by section 203 to issue the certificate of tax deducted in Form 16. No employee-employer relationship is necessary for this purpose, and secondly the certificate in Form No. 16 cannot be denied on the ground that the tax deductor is unaware of the payees other income.

Conclusions for Pensioners on Income Tax

  • Income from Pension Annuity is covered by TDS provisions u/s 192.
  • There is no TDS provision for payment of family pension.
  • Banks paying pension on behalf of govt. is the person responsible for payment & hence is liable to comply with the TDS provisions & will be penalized in case of default. In case of pension amounts received by non-governmental persons, the company is responsible for TDS, failing which penalty as well as penal interest would be levied on them.
  • Pensioners can submit proofs for deduction u/s 80C, 80 D etc, & even entitled to relief u/s 89 (in case of arrears) to avoid TDS & are entitled to receive Form 16 from banks in case of tax deduction.
  • There is no provision to give declarations by pensioners like 15 G /H to avoid TDS.

51 comments to Income Tax for Pensioners on Pension Amount

  • RABIN KUMAR DUTTA

    my basic pension was 16950 and after deducting commuted amount 6780 I am getting 10170+ 16950 da . what will be my taxable amount after 12 month assumig no cange od da and no other deduction US 80C and no other income. My view is it is 27120x12less 2.5 lakh ie 75440 and tax payable is 10.3% on 75440=7770. Am I correct. commuted amount already received in lump is exempted US10 OF it act rabin dutta

  • RABIN KUMAR DUTTA

    my basic pension is 16950/- commuted amount is 6780. Hence getting Rs 10170+ dp per month Please inform what is taxable amount,According to me is is 27120×12=325440less 2.5 lakh X10.3%(10170+16950-250000)x12x10.3%( assuming da is 100% throughout year) Rabin dutta bankura

  • sanjay bharti

    Dear adviser,
    I am recently retired ( attained 60 yrs of age i.e. being senior citizen of India) from Nationalised Bank In May,2013. In this Income Tax return I have to take in to account my all the retiremental benefits like PF repayment, Gratuity amount, Leave encashment and commutation amount while calculating Income Tax liability. I received regular salary for April and May 2013. Thereafter monthly Pension.

    Kindly guide me as to what amount be taken for taxable Income out of above four categories i.s. PF repayment, Gratuity amount,Leave encashment of 240 days and commutation (1/3rd )amount for FY 2013-14.

    Since, I have to pay the Income Tax within next four days as the last date is approaching fast, kindly guide immediately.

    Regards

  • Srinivas

    Dear sir,
    My father was a AP state govt employee(Dy.Education Officer) who expired last year after retirement at the age of 65,my mother’s age 61 receives pension through bank account total close to 29,000(Basic,DA,IR, medical only) per month, IT of 4000 deducted in Feb and also expected same amount IT deduction in March,
    1) what are different sections under which she can save tax like Fixed deposits and LIC etc.
    2) what are the Max limits/brackets of amounts to save in these sections ?
    3) How to get the IT refund and
    4) how much refund can we claim ?

  • KAMAL KRISHNA BHAUMIK

    My wife is a pensioner. She has received pension during the F.Y. 2013-14 as sum of Rs. 1,36,629/-. She has also received interest on Fixed deposit Rs. 3,46,862/- only during F.Y. 13-14, for investment for a period more than 30 months. Now, Whether she can sought for releif under section 89 of the Income Tax on the interest on Fixed deposit

  • s romesh chandra

    I am an ex-serviceman and drawing pension, Rs 14904. I am also employed in a private firm and the TDS is being cut from the salary that I receive from the firm. Now, to calculate income from other sources and arrive and the final tax should my pension be added to my salary by my employer for calculation

  • mathew varghese

    central govt employee retired in Nov213 . till such period it was TDS . now it is not tds being pensioner. hence advice when and how to pay balance tax.,since i will be getting my TDS certificate only after March.Till nov my tax has been assessed and deducted at source.hence is it possible to pay advance tax separately before receiving my tds certificate.,or is it permitted to pay along with my returns which shall be partially tds and partially direct .Otherwise can it be paid at IT counter (tax on pension)

  • C.K.Mansoor Rahman

    Sir,Kindly display the income tax rate table for retired government employees as per revised income tax rule 2014.

  • My father is a retired teacher, this FY he received pension of, 240,000 & interest Rs 59000, his age is 71 yrs, he got exemption of 2.40 L whether he has to pay tax on balance amount after exemption ? he is in rental house, shall we take consider rentals also ? how much we have to pay tax to IT dept.

    • Financial Advisor

      You can consider rentals also, also savings up-to 1 Lac in tax saving instruments will be beneficial and will keep you father in tax exemption bracket

  • Tungal Singh

    Dear Sir,
    I retired on 15th July, 2013 from a Japanese Company. Beside this I am an Ex-Service Man getting Pension of Rs. 25000/- per month. Till year 2012-13,the income tax calculated by the company on salary and pension amount. But this year, after July 2013, how to calculate the income tax and where to deposit the tax amount. weather, I am liable to get HRA and other benefits which were applicable during my service period in private company.

    Pl. advise. Regards–Tungal Singh

  • Unnikrishnan

    Sir,
    I am an Ex-Serviceman and currently drawing a basic pension as Rs 7040 and commutation as 3520. Presently I am absorbed in a central govt dept. while computing income tax are they taking the full amount of basic pension or the deducted portion of commutation. I am not been received any previous seniority in the present service.

  • R N SHINDE

    i have recently retired from the army,I would request to kindly info
    that as to weather the following are taxable
    (a) Gratuity
    (b) Commutation of pension
    (c) DSOP
    (d) Encashment of leave
    Also info about the % of income tax that has to be paid/deducted.

  • dharani

    Dear sir,

    My father is a state govt employee who expired last year after retirement at the age of 62,my mother age 63 receives pension through bank account total close to 36 k per month taking all constraints(family pension,DA,etc) how she will be taxed and what are different sections under which she can save tax like Fixed deposits and LIC etc.

  • Angelo IM

    Dear Sir,

    I am an ex-JWO IAF, aged 72 ,drawing a service military pension about Rs.20K+ monthly.

    Kindly let me know whether I am exempted from paying IT? If I have to pay IT, how IT is calculated for me?

    Thanks.

    Yours truly,

  • Alok Jha

    Is professional tax liable on pension. Pl reply.

  • S.Prakash

    whether TDS is applicable on SBI’s Annuty deposit scheme?

  • Durga Prasad

    I am getting pension from Railways for which the bank is doing TDS. After retirement, I am employed in private firm, my salary is subject to TDS and issuing Form 16. While filing IT Returns, should I include my pension also “income from other sources’?

  • K M Naidu

    I am an Ex Serviceman and drawing pension.
    Pl intimate whether defence pension is exempted from IT. My Pension at present is Rs.8947.00.

    I am now working in a private . My present salary is taxable but should I include my pension with my present salary for taxation ?

    Please suggest

  • viswamohan

    I want to know besides pension the da paid on pension is also taxable

  • NILESH

    MY GRNADFATHER RETIRED FROM ARMY AS CORNEL
    RECIEVES ARMY PENSION 35000 PM
    BUT WE ARE NOT AWARE FROM WHERE TO COLLECT FORM 16
    IS IT
    FROM BANK WHO IS PAYING PENSION
    OR PRINCIPAL CONTROLLER OF DEFENCE ACCOUNTS (OFFICERS) WHO ACTUALLY PAYS THE RATE ARREARS & PENSION.

  • Lalitha

    I retired from nationalised bank in Oct 2012.I got salary up to oct 2012 and pension from nov 2012. Apart from this I received my PF contribution,commutation,gratuity and leave encash ment. Can I file ITR2 quoting employmnet category PSU and giving salary and pension amount under the coloumn Salaries and declare the commutation,gratuity(within Income Tax ememption limit)and P.F, leave encashment under Item 2 of schedule S to claim deduction undersection 10.
    An early reply will enable me to file the return for AY 2013/14. Thanks
    Lalitha

  • RC SAXENA

    For an individual who is supposed to use ITR I,which form will he use if he is getting exemption on pension amount,being gallantry medal winner?

  • mandy

    I want to know is my mother be eligible to give INCOME TAX .She is 63 years of age n is retired now.she is getting 20000 approx as pension/month through sbi bank.plz clear my doubts as I hv no idea abt tax n my father is no more.

  • ANANDA C L

    I am an Ex Serviceman and drawing pension.
    Pl intimate wheather defence pension is exempted from IT. My basic Pension is Rs.8200.00 without commutation and after commutation it is 4100/-(50%).

    I am now a state Govt. employee also. My present salary is taxable but should I include my pension (Full/commuted) with my present salary for taxation ?

    Please guide how to calculate my tax.

  • Anantha Krishna Jois

    I am a retired employee of KSRTC (Karnataka). There is no pension scheme in KSRTC. We were covered with ECPF (Employees Contributory Provident Fund). As per the earlier FPS now the Pension Scheme of 1995 Govt.., of India Department of Provident Fund fixed my pension as Rs.1589.00 per month. I am getting other sources of Income addition to this. Plese clarify while filing IT returns wheather I have to include this pension amount as Income from othr sources or not? Is there any exemption for this amount?

  • laveti krishnarao

    I wanted to know that the pension of an exserviceman is exempted from income tax or not.

  • Subrato Sarma Mazumder

    I want to know as to whether Income from Pension amount falls under deduction of Income Tax U/S 192. If so,how it is to be calculated and deducted.Further,deducted amount of tax from pension is refundable or not if I calculate arrear pension etc. showing year-wise break up.

    • Tax junior

      Under Section 192(1) and treated and taxed as “Income from Salary”.U can also submit any savings under various sections applicable to an “Employee” drawing Salaries viz.80c etc.

  • Dipa

    I have taken voluntary retirement. As a pesioner, I have no saving as GPF, but I have a PPF Account with SBI. May I be entitle to get IT rebate to the tune of rupees one lak, if I deposite rupees one lak during the current financial year 2012-13. Please clarify urgently.

  • Srinath

    My mother is a family pensioner .she is in her 50s.
    Is she required to file any form like 16A .or pension providing bank itself take care of such things..pls clarify my doubt.she just put fixed deposits. at tht time the bank asks for pan card.i dnt knw y ?

  • Which ITR Form should be used while filing Income Tax Return for showing Pension Income

    • RP

      How Income tax on Pension should be calculated when a part of pension is deducted as commuted value? whether commuted value which deducted should also be taken as Taxable value or only part received money as pension is taken taxable income?

  • satyabrata hom

    so precisely serves with the information for pensioner ,is of great use at doorstep.This knowledge would be helpful as ready reckoner to file IT return with minimum legal cost. Thanks a lot

  • Prashanta Kar

    I am an Ex Serviceman and drawing pension.
    Pl intimate wheather defence pension is exempted from IT. My basic Pension is Rs.7370.00 without commutation and after commutation it is 3685/-(50%).

    I am now a Central Govt. employee also. My present salary is taxable but should I include my pension (Full/commuted) with my present salary for taxation ?

    Please guide how to calculate my tax.

    • NARENDER SHARMA

      Hi, Prashanta Kar

      In your case, it is not clear as to u have applied for refixation of pay in your new service. If your pay refixation has been done in your existing service, you are entitled to get pension (without DA) and Income tax will be calculated on your existing salary (not on pension)

  • RS Rawat

    I believe that Liberalized Family Pension is exempted from Income Tax. I am looking for the GoI authority on this subject.
    Also kindly intimate if TDS is not applicable to Family Pension.
    Rgds
    Brig RS Rawat

  • Krishna Kumar

    I am a retired commissioned Officer of IAF receiving Defence Pension. I am not cleat as to how Inocme Tax on pension is calculated? My pension started on 01 Jan 2011 as I retired on 31 Dec 2010. In the month of August 2011, the commuted amount was credited. There are two issues which I want discuss. Firstly, how IT is calculated on my pesnion. Details are given below.
    Basic Pension is Rs.30650 without commutation and after commutation it is 15325/-(50%). In case of my pension till Jul 2011, IT has not been deducted and since Aug 2011 Rs.9063 has been deducted per month as IT. How this is calculated? Is the deduction correct?

    My second question is regarding the Fixed Deposit of the lumpsum amount commuted and the gratuity. I have deposited Rs.20 lakhs for which I am geting interest @ 9.25% credited monthly. I want to knwo as to how and how much will be the income tax should be deducted as TDS. Please clarify. Thanks.

  • Henry Naresh

    Dear Sir,

    I am an Ex Serviceman and drawing pension.
    Pl intimate wheather defence pension is exempted from IT.

    Thanks & Regards,

    Henry

  • braj nandan singh

    i need income tax proforma of income tax in the pension and rule of income tax payment of central government employee. and how much tax per year

  • sai

    Dear sir,

    My grand father’s annual pensionincome is 2.4 lakhs. in this yera, IT attracts on this amount. He is liviing in a rented house of monthly rent of 2000/- p.m. Kindly inform me whether exemption of rent from taxable income can be allowed for pensioners also?

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