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April 13, 2021

Receiving Family Pension? Know how much Standard Deduction you get

by Mahesh Mara in Income Tax

Receiving Family Pension? Know how much Standard Deduction you get

Pension is a benefit received by the employee after retirement from the Job. Family pension is can be termed as a regular monthly amount paid by an employer to a person who belongs to the family of the employee in the event of the death of the employee. There is a basic difference between a pension and family pension. Pension is paid to an employee where employee is still alive whereas family pension is paid to a nominee or heir of the employee when the employee is no more alive.

In this article we will learn what is Family Pension and the taxation aspects related to family pension. Family Pension is the grant provided to the family of a Government employee in the event of employees death during the time of service. In some cases it is also provided after the retirement of the deceased employee where the employee was receiving pension on the date of death.

What is Pension?

Pension is a retirement benefit; It is taxed under the head Income from salary in the hands of the employee. Pension Income is liable for TDS under section 192 of income tax act on payment.

Family pension received by the dependence of the employee is taxable under the head income from other source. TDS is not deductible on family pension received by the dependence of the employee as it is not covered under section 192 of the Income tax act and instead been covered as Income from Other Sources.

Pension received by the employee are of two types which are as follows:

a) Uncommuted pension:-

Uncommuted pension is periodical payment to the employee on monthly basis.

b) Commuted pension:-

When a person forgoes a portion of the pension and receives a lump sum amount by surrendering such portion of pension, this is called commuted pension. The pension may be fully or partly commuted.

Taxability of Pension and Family Pension:

Tax treatment of pension is as under:

1. Uncommuted pension i.e. periodical pension: It is fully taxable in the hands of all employees, whether government or non- government.

2. Commuted Pension: As per section 10(10A), any commuted pension, i.e., accumulated pension in lieu of monthly pension received by a Government employee is fully exempt from tax. Exemption is available only in respect of commuted pension and not in respect of un-commuted, i.e., monthly pension. Exemption in respect of commuted pension in case of a non-Government employee will be as follows:

i. If the employee receives gratuity, one third of full value of commuted pension will be exempt from tax under section 10(10A).

ii. If the employee does not receive gratuity, one half of full value of commuted pension will be exempt from tax under section 10(10A).

Exemption shall be to the extent it is allowed to be commuted and the balance uncommuted Pension received periodically will be fully taxable.

3. Family pension received by the legal heirs of a deceased employee:

Family Pension will be taxable under the head ‘income from other source’ subject to a standard deduction under section 57(iia) shall be allowed to the legal heir as under:

1/3 of such pension

or

Rs. 15,000, 

whichever is less.

The following pension received shall be exempt under Income tax:

a. As per section 10(18) Pension received by an individual who was employee of the Central Government or State Government and who has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or any other notified gallantry award is exempt from tax

b. Family pension received by the family members of armed forces [Section 10(19)]

c. As per section 10(10A), any commuted pension, i.e., accumulated pension in lieu of monthly pension received by a Government employee is fully exempt from tax. Exemption is available only in respect of commuted pension and not in respect of un-commuted, i.e., monthly pension.

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