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Taxation does not retire with retirement of an employee, it is always applicable till the time he earns Income. After retirement employee receives income in the form of pension and other benefits like Gratuity etc. In this article we have explained the taxability of pension received by a retired individual.
In taxation, pension is classified in 2 types:
- Commuted Pension which is lump sum payment received at the time of retirement
- Uncommuted pension which is monthly pension received by employee after retirement.
Taxability on these 2 types of pension is discussed below:
- Commuted Pension received by Government employees is not taxable.
- Non government employees, who receive Gratuity along with Commuted Pension, get a tax exemption of up to 1/3rd of the total amount so commuted.
- Non government employees who do not receive Gratuity, exemption amount from tax is 1/2 of the total Commuted Pension received.
- Monthly pension received by an employee is taxable.
- Uncommuted Pension received from UNO by an employee or his family is not taxable.
- Family pension received by the family of armed force employee after his death is exempted from tax.
- Family pension received after the death of the employee is taxable as ‘Income from Other Sources’. 1/3rd of the pension amount or Rs. 15,000/-, whichever is lower, is exempt from tax.