Income Tax for Pensioners
As per Section 60 of the CPC and Section 11 of the Pension Act, Pension is an allowance (periodical) or a stipend given for any past service rendered to an organization and or special merits.
Pension is based on a prior agreement of services between the employee and employer. This agreement stands valid until the employee is employed in the firm.
Pensioner is a retired individual who is living life with the help of a Pension amount. It is a kind of compensation given to an employee by his or her employer for the services he or she has given to the organization.
The pension amount which is being given to the pensioner is taxable Income Tax. If the pensioner is receiving their pension from any Nationalized Banks or disbursing and drawing officers, then they get several deductions on their Salaried Income under Section 89(1) of the Income Tax Act.
Section 88 and Section 88B of the IT Act, also provides for tax rebate adjustments to be carried out by banks while Deduction of TDS from one’s pension.
Income Tax Form for Pensioners
Form ITR 1: This form is also known as SAHEJ. It is the simplest form that can be used by individuals as pensioners for filling their ITR. One needs to keep in mind it is for only Salaried individuals who are having their source of income from capital gains, profession or any business.
Salaried Individuals or Pensioners who are not liable to file Form ITR 1
Individuals who are earning income from house property. It does not include those cases where losses have been registered and being carried forward from the preceding year.
Individuals having other sources of income. Earnings in the form of lottery winnings or horse race winnings are not applicable.
Process to file Form ITR 1
The taxpayer needs to fill correct information about him in the space being provided at the form by following the below-mentioned process:
- PART A: The applicant needs to provide all personal details which include the date of birth, name, E-mail address, and other related information.
- PART B: The applicant needs to provide information about Gross Total Income I.e. Salary from income. The information should match with the information which is furnished in Form 16 and Form 12BA.
- PART C: The applicant needs to furnish information about all deductions that have been provided in Form 16 and total taxable income.
- Part D: The exact computation of tax along with the status of tax must be provided in this category
- Apart from that, applicant also needs to provide details about his running bank account along with IFSC code and the branch and bank code of the same
- Verification also done of the details furnished
- Under the part mentioned as Schedule IT, the applicant needs to furnish details related to advance tax as well as payments made towards self-assessment tax
- Under the part mentioned as Schedule TDSI, the applicant needs to provide details related to TDS from salary
- Under the part mentioned as Schedule TDS2, the applicant needs to furnish details related to TDS having income sources other than salary
After the pensioner fills the application form in a prescribed manner, he or she can go the e-file option to fill the form via the official website of the Income Tax Department of India
The last date for filing one’s returns are generally set at the final working day of August of a Fiscal Year. Once, the form has been submitted, the Pensioner or the Assessee will receive ITR-V which must be submitted by him or her to the nearest Income Tax department branch via post within 120 days
How to calculate tax for pensioners?
- Pension is generally on the income which is earned from salary under the ‘Salary head ‘in ITR form. Pension is either paid every month or in the form of the lump sum amount and is also known as a commuted pension
- The pension which is paid on a periodical basis is also known as uncommuted pension and is liable to pay 100% tax
- Commuted pension, which is being received by a family member, as a lump sum payment may also get a tax exemption under the head ‘Income Tax from other Sources’.
- Uncommuted pension received by one’s family member, subject to a minimum of Rs15,000 or 1/3rd of the total pension amount is exempted from tax.
- Any amount of pension that is being received from the UNO is getting a 100% exemption from the tax as a pension because it is given to Armed Forces.
- Family pension is given every month to a family member of an employee by his employer in case of a sudden death of the employee. Family Pension is taxable under the head income from other sources, as a direct employee, employer relationship is missing in this case.
Amount of tax to be paid on one’s Pension
An individual need to file Income Tax Return if his or her Taxable income falls under the Exemption limit. Situations in which one needs to pay tax are as follows:
- Income which is generated via pension is treated as a salary income and is also taxable under the head ‘Income Tax from Salary’
- Income whereas Income which is being generated from investments taxed under the head ‘Income Tax from other Sources’
- Income Earned via interest on PPF exempted from the tax.
The person to file ITR needs to ascertain total income. For this needs to do the following things: Commute Taxable income by adding the pension amount in the total taxable interest.
A. Subtract the valid deductions which include PPF investment interests, health premiums and other related deductions. If he or she finds out that the total incomes exceed the exemption limit, then he or she is required to file ITR.
Who all are tax exempted when it is Income Tax for pensioners?
- Central or State Government employees as well as retired Defense services or individuals are not liable to pay any tax on commuted pensions
- Non- Government employees are partially exempted from making payment of taxes on commuted pension received
- If Non- Government employees are also receiving gratuity along with the amount of pension, then a commuted pension amounting up to 1/3rd of the pension amount is also tax exempted. Individual needs to give tax on the rest of the amount i.e. 2/3rd of the pension amount along with gratuity amount under the head’ Income from Salary’.
- For employees receiving the only pension in the form of commuted pension then in that case half of the pension amount is tax exempted.
