Income Tax for Pensioners - Calculation of TDS on Pension

Are Pensioners required to file Income Tax Return?

Yes, pension earners are required to file Income Tax Return if their total income (before claiming deductions under section 80C to 80U) exceeds

• Rs.2.5 lakhs (age of pensioner being less than 60 Years)
• Rs. 3 lakhs (age of pensioner being 60-80 Years)
• Rs. 5 lakhs (age of pensioner being above 80 Years)

We are talking about total income and not just your pension income. In case you have earnings from any house property like rental income or other sources like interest etc, your aggregate income from all sources should be considered in checking above limits.

Pension income should be disclosed under which head of income?

To find an answer to this, we need to divide our discussion in two parts

• If pensioner himself is receiving pension
• When family members are receiving the pension amount

In the first instance, income should be disclosed

• At par with salary income and shown in form ITR-1
• As income received in hand of pensioner is mostly routed through the bank and not from the employer, while claiming TDS (if any) TAN of issuer i.e. bank shall be quoted.
• A confusion arises in the minds of tax filers that what shall be the credentials to entered if income is shown as salary income. The employer details shall be the details of your last employer.

(The tax implications arising in case of pensioner receiving the amount has been explained below)

In case where family members receive the pension, after demise of pension holder, it shall be shown as Income From Other Sources. The reason being the pension does not accrue because of any service rendered to employer by the family members.
Commuted i.e. lump sum pension received by family members is EXEMPT from tax.
Uncommuted pension i.e. pension received periodically by family members is exempt minimum of
Rs.15,000/- or 1/3rd of pension amount

What are the tax implications if pension is received by pensioner himself?

For understanding the tax implications here, first we need to understand that pension can be categorised into two parts

Commuted pension means amount of pension received in lump sum. It can be the complete pension or a specified part of total pension.
Example:
If Sharma ji is eligible for total pension of say Rs.10 lakhs, he can opt to seek complete amount of Rs. 10 lakh in lump sum as commuted pension. Otherwise he can also, seek any part of it say Rs. 01 lakhs or 02 lacs or 05 lakhs in one go and rest in periodic installments.

Uncommuted pension is pension received periodically, and this period is normally fixed at monthly rests.
“The golden rule of pension says that UNCOMMUTED PENSION is ALWAYS TAXABLE”

Taxability of commuted pension

Commuted pension when received by government employees OR employees retiring form defence services it is FULLY EXEMPT from levy of taxes.
For Non Government employees (if 100% pension is commuted), the exemption granted is partial depending upon whether a person also receives gratuity.

• In case a person earns both PENSION + GRATUITY -> 1/3rd of amount received as pension is exempt from levy of taxes
• In case a person earns only PENSION -> 1/2 of amount received as pension is exempt from levy of taxes

Receiving pension gives us a sigh of relief but thinking about tax filing frightens. But no any more!! For any further information desired post your comments below and if you are looking for any help with filing your return and managing taxes Contact us now!!!!