Tax on Pension Revenue: Computation of Quantity Exempted

On the time of retirement of an worker, the employer pays the worker a certain quantity often in consideration of his previous service. This periodic cost is paid by the employer to his worker is known as Pension.

After the introduction of the Nationwide Pension Scheme, not solely can the employer pay pension after retirement however the Pension Scheme also can pay Pension. The person taxpayers may additionally spend money on a pension plan which is able to give them pension after retirement. Such funding in pension plans will also be claimed as a deduction beneath Part 80CCC & Part 80CCD

Really useful Learn:-

  • Part 80CCC: Tax Deduction for Contribution to Pension Fund
  • Part 80CCD(1) & 80CCD(2): Deduction for Contribution to NPS

The quantity obtained as pension from the employer or from the pension fund or from another supply as pension could be liable to earnings tax. Computation of Revenue Tax on Pension Revenue has been defined beneath on this article.

Earlier than understating the computation of tax on pension, it is very important perceive that there are 2 sorts of Pension:-

1. Uncommuted Pension: Uncommuted Pension refers to Pension obtained periodically. Any quantity obtained as Uncommuted Pension is totally taxable within the fingers of each govt and non-govt staff.

2. Commuted Pension: Commuted means Interchange. Many employers permit the worker to forgo a portion of the pension and obtain a lump-sum quantity by surrendering a portion of the Pension. Such quantity obtained is named Commuted Pension. The pension could also be totally or partly commuted.

For instance, suppose an individual is entitled to obtain a pension of Rs. 2000 pm for the remainder of his life. He could commute 1/4th i.e. 25% of this quantity and get a lump-sum of Rs. 30,000. After commutation, his pension will now be the steadiness 75% of Rs. 2000 pm i.e. Rs. 1500 pm

Revenue Tax on Commuted Pension

Computation of earnings tax on Commuted Pension on the time of submitting of Revenue Tax Return beneath Part 10(10A) could be as follows:-

Computation of Pension quantity exempted

  1. Acquired from Govt employer: Absolutely Exempt from Revenue Tax. In different phrases, no earnings tax on pension obtained from Govt.
  2. Acquired from Non Govt Employer: The next quantity shall be exempted from the levy of Tax on Pension Revenue

Tax on Pension Revenue

The pension obtained shall be “taxable beneath head Wage” within the method as proven above

Nonetheless as per Part 57(ii)(a), if uncommuted household pension is being obtained after the demise of the worker by the relations, the pension so obtained could be taxable beneath the top – “Revenue from Different Sources” as employer-employee relationship doesn’t exist on this case. In such a case, the place uncommuted household pension is being obtained by the relations – 1/3rd of the Pension obtained or Rs. 15,000 whichever is much less shall be exempt.

Nonetheless, as per Round No. 573 dated 21/08/1990, if any commuted pension is being paid to the relations, no tax could be levied on commuted pension.

Related Factors relating to Tax on Pension

  1. ½ of the commuted  pension obtained by the judges of the Supreme Courtroom and the Excessive Courtroom could be allowed as exemption (Round No. 623 dated 06-01-1993)
  2. No tax on pension earnings could be levied on any quantity obtained from UNO
  3. Normal Deduction of Rs. 40,000 will also be claimed from Pension Revenue as this additionally falls beneath head – Revenue from Salaries. This Deduction is relevant from Monetary Yr 2018-19 onwards.

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  • 8 methods to Save Tax legally by Tax Planning
  • 8 efficient methods of incomes Tax Free Revenue

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