Pension is nothing but a regular stipend given to an ex-employee in
recognition of the service he has put in. The pension amount is fixed in advance
by the employee and the employer. The pension amount received by a retired
employee in India is treated as an income and so the norms of taxation are
applied. There are however, different rules for different categories of people
receiving different amounts of pension. Some of these are exempted from Income
Tax, but most of them do not enjoy any exemptions. The provisions of the
TDS as stated in Section 192 are application to the pension as it is viewed as an income.
Categories of pensioners:
While the majority of the population falls under the general category and their pension is taxed, there are some categories that enjoy tax exemption on the pension amount they receive. These people include:
1. An employee of the UN – A person who has worked for the UN is eligible for tax exemption. In the case of death of the employee, the family members will be entitled to receive the tax-free pension amount.
2. Armed forces – Under section 10(19), the pension received by an armed forces employee or the family will be tax-free.
3. High Court and Supreme Court judges – Retired High Court and Supreme Court judges receive a tax exempted commuted pension amount as long as the value is less than half of their total pension under Section 10(10A)(ii).
4. General public – Government and non-government employees, who do not fall in the above mentioned categories, do not enjoy any tax deductions in the pension they receive. Their pension is seen as an extension of their income and the taxes apply. This continues till the person lives and receives pension. In the case of his/her death, the nominee continues to receive the pension amount after the taxes are deducted.
Tax benefit in premiums paid for pension plans
If you buy an insurance policy to provide for your retirement days (also known as pension plans), you will get a tax discount on the premiums you pay. You can avail tax benefits of up to Rs 10,000 under Section 80CCC.
Tax benefit on maturity amount received
Under Section 10 (10A), 1/3rd of the maturity benefit received from a pension plan is tax-free. The pension amount that is received thereafter, however, is taxable.
So as we can see, the pension received in the hands of the annuitant is not tax-free, unless the person falls in a special category. Whether you get your retirement benefit from your employer in the form of pension or from your insurance policy, the monthly amount you receive will be taxed. So keep this in mind while calculating your expenses. However, as there is a substantial tax benefit on the premium you pay for your retirement plan, it makes it a very good savings option. Not only do you end up saving tax, you also build up a corpus for your retirement years
TDS as stated in Section 192 are application to the pension as it is viewed as an income.
Categories of pensioners:
While the majority of the population falls under the general category and their pension is taxed, there are some categories that enjoy tax exemption on the pension amount they receive. These people include:
1. An employee of the UN – A person who has worked for the UN is eligible for tax exemption. In the case of death of the employee, the family members will be entitled to receive the tax-free pension amount.
2. Armed forces – Under section 10(19), the pension received by an armed forces employee or the family will be tax-free.
3. High Court and Supreme Court judges – Retired High Court and Supreme Court judges receive a tax exempted commuted pension amount as long as the value is less than half of their total pension under Section 10(10A)(ii).
4. General public – Government and non-government employees, who do not fall in the above mentioned categories, do not enjoy any tax deductions in the pension they receive. Their pension is seen as an extension of their income and the taxes apply. This continues till the person lives and receives pension. In the case of his/her death, the nominee continues to receive the pension amount after the taxes are deducted.
Tax benefit in premiums paid for pension plans
If you buy an insurance policy to provide for your retirement days (also known as pension plans), you will get a tax discount on the premiums you pay. You can avail tax benefits of up to Rs 10,000 under Section 80CCC.
Tax benefit on maturity amount received
Under Section 10 (10A), 1/3rd of the maturity benefit received from a pension plan is tax-free. The pension amount that is received thereafter, however, is taxable.
So as we can see, the pension received in the hands of the annuitant is not tax-free, unless the person falls in a special category. Whether you get your retirement benefit from your employer in the form of pension or from your insurance policy, the monthly amount you receive will be taxed. So keep this in mind while calculating your expenses. However, as there is a substantial tax benefit on the premium you pay for your retirement plan, it makes it a very good savings option. Not only do you end up saving tax, you also build up a corpus for your retirement years
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