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1. Introduction
2. Taxability of Commuted and Uncommuted Pension
3. Pension received by a family member
4. Pension that is received from UNO
1. Introduction
Pension is taxable under the head salaries in your Income Tax Return (https://cleartax.in/s/income-tax/). Usually, pension is paid out periodically, on a monthly basis,
However, you may also choose to take pension as a lump sum (also called commuted pension) instead of a periodical payment. Let’s first understand commuted
pension by way of an example. At the time of retirement, you may choose to receive a certain percentage of your pension in advance. Such pension received in advance
is called commuted pension. For e.g. – At the age of 60, you decide to receive 10% of your monthly pension in advance of the next 10 years of Rs 10,000. This will be paid
to you as a lump sum. Therefore, 10% of Rs 1000x12x10 = Rs 1,20,000 is your commuted pension. You will continue to receive Rs 9,000 (your un-commuted pension) for
the next 10 years until you are 70 and post 70 years of age, you will be paid your full pension of Rs 10,000.
Pension received by a family member is taxed under income from other sources in your Income Tax Return. If this pension is commuted or is a lump sum payment it is
not taxable. Uncommuted pension received by a family member is exempt to a certain extent. Rs 15,000 or 1/3rd of the uncommuted pension received -whichever is less
is exempt from tax.
For Example – If a family member receives pension of Rs 1,00,000 the exemption available is least of – Rs 15,000 or Rs 33,333 (1/3rd of Rs 1,00,000). Thus the
taxable family pension will be Rs 100000 – Rs 15000 = Rs 85,000
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