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.
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.
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