Pension under the head of salary

Introduction:

              Pension is taxable under the head salary in your income tax return. Pensions are paid out generally every month or lumpsum amount.

Pension are :

              Commuted and Uncommuted Pension.

Commuted pension: :

              A commuted pension is one in which a retire forgoes a portion of their pension and receives a lump sum payment.

For example:

Let’s considered, your monthly pension is Rs 50,000 at the time of retirement and you need to take a 10% advance on your pension for the next 10 years. You will receive a lump sum of Rs 6 lakh

=Rs 50,000 x 12 months x 10 years

 This is called a commuted pension.

Uncommuted pension:

          A Uncommuted Pension is the payment on monthly basis.

For example:

Let’s considered, your monthly pension is Rs 50,000 at the time of retirement

Amount, i.e., Rs 50,000 will be your monthly pension for the next 10 years.

 This is called an uncommuted pension.

Computation of income tax on commuted pension as follows:

Amount received as commuted pension   xxx

Less: Amount exempt                                    xxx

COMPUTATION OF PENSION AMOUNT EXEMPTION:

1. Received from Government Employer: Fully exempt from Income Tax.
2. Pension received from Non-Government Employer - The following shall be exempt:

• If Gratuity is received along with pension: 1/3rd of the amount of pension which he would have received had he commuted 100% of pension.
• If no Gratuity and only Pension received: 1/2 of the amount of pension which he would have received had he commuted 100% of pension.