Products
Personal Loans Business Loan Gold Loan Credit CardsResources
EMI Calculator IFSC Code Blogs FAQsBlogs > Understanding Taxes on Pension
Pension is the amount your last employer will pay you after you retire. If you get a pension after your retirement, it is treated as a source of income and is liable to be taxed; receiving pension is not considered as a privilege for the individual.
If you continue to earn income through Pension on a regular basis, you are earning what is known as “Uncommuted Pension”. And if your pension was delivered to you as a lump-sum (all at once) when you retired, you have earned what is called as “Commuted Pension”. Both the modes of pension are taxed, but in slightly different ways.
We will be talking about the taxes on both kinds of pension in this section. We will also see what happens when family members receive pension instead of the pensioner individual.
The new lower income tax rate regime proposed in the budget 2020 does not provide a higher tax exemption limit for resident senior and super senior citizens, unlike what is available to them in the existing tax regime. As per current income tax laws, the basic income threshold exempt from tax for senior and super senior citizens is Rs 3 lakh and Rs 5 lakh respectively. This itself gives them some tax relief in the existing structure.
There are a few categories of employees for whom the commuted pension is fully tax-free:
Don’t forget to check the tax-saving features of these pension plans.
There are very few sources of “tax-free” income and the ghost of taxation won’t leave your side even after retirement. Basically, people retire, taxation doesn’t. Which is why it is important to know the different heads of taxes under the Income Tax Act, to ensure that you can plan ahead.