Pension - [Section 10(10A)] - Income Tax - Ready Reckoner - Income Tax

PENSION [ Section 10(10A) ] Pension can be divided into two types: Uncommuted Pension Commuted Pension Uncommuted Pension - It is fully taxable as salary under section 15 in the hands of a Government employee as well as a non - Government employee. Commuted Pension is received in one time rather in installments. Pension Receipts which are fully exempt [ Section10(10A)(i) (iii)] Any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable:- to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or a corporation established by a Central, State or Provincial Act; [ Section 10(10A)(i) ] Any payment in commutation of pension received from a fund under clause (23AAB) of the section 10 of the Income Tax Act, 1961 by the Life Insurance Corporation of India or any other insurer under a pension scheme to which contribution is made by any person for the purpose of receiving pension from such fund and which is approved by Insurance Regulatory and Development Authority. [ Section 10(10A)(iii) ] Other Exemptions granted vide Lump sum amount received in lieu of pension by persons absorbed in public sector corporations will be fully exempt under 10(10A)(i) as per Circular No. 286 dated 17-11-1980 . Such circular Explained in - In S. Ranganatha Rao Versus Accountant-General and Others 1981 (1) TMI 56 - Karnataka High Court , the above said circular was explained with the following observations : In para. 3 of the said circular it is stated that the Board has been advised that the decision of the Delhi High Court is to be accepted and thereafter, it is further stated that in that view of the matter instruction No. 819 stands withdrawn with immediate effect. It is, therefore, clear that the petitioner s commuted pension is not liable to tax at all and if he is not liable to tax under the Act, then the Accountant-General has no jurisdiction to order deduction of the tax at source. Salary received by employees of the UNO or any person covered under the UN (Privileges and Immunities), Act, 1947 and pension received by them from the UN will also be exempt from income-tax as per Circular No. 293 dated 10-02-1981 . Judges of the Supreme Court and High Courts will be entitled to the exemption of the commuted portion under section 10(10A)(i) of the Act vide Circular No. 623 dated 6-1-1992 . Payment in commutation of pension received by any other employee [ Section 10(10A)(ii) ] In case of any other employee, if the employee receives gratuity, the commuted value of one third (1/3) of the pension is exempt, otherwise, the commuted value of of the pension is exempt. If payment in commutation of pension received by the employee exceeds the aforesaid limits. Such excess is liable to tax in the assessment year relevant to the previous in which it is due or paid .The assessee can,however, claim relief in term of section 89 read with rule 21A . Income From NPS does not include in the Total Income Any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 and the regulations made thereunder, to the extent it does not exceed twenty-five per cent. of the amount of contributions made by him. [ Section 10(12B) w.e.f. 01.04.2018 ] any payment from the National Pension System Trust to an assessee, being the parent or guardian of a minor , under the pension scheme referred to in section 80CCD, on partial withdrawal made out of the account of the minor, as per the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 and the regulations made thereunder, to the extent it does not exceed twenty-five per cent. of the amount of contributions made by him. [ Section 10(12BA) inserted vide Section 6 of the Finance Act, 2025 w.e.f. 01.04.2025 ] INCOME TAX ON COMMUTED PENSION: Computation of income tax on commuted pension at the time of filing income tax return will be as follows: Amount received as commuted pension xxx less: Amount exempt xxx COMPUTATION OF PENSION AMOUNT EXEMPT: Received from Government Employer: Fully exempt from Income Tax. Pension received from Non-Government Employer: The following shall be exempt: If Gratuity is received along with pension: 1/3rd of the amount of pension which he would have received had he commuted 100% of pension. If no Gratuity and only Pension received: 1/2 of the amount of pension which he would have received had he commuted 100% of pension. National Pension System, in case of an employee Central Government/ State Government on or after January 1, 2004 or any other employer NPS is applicable to new entrants to governments services or any other employer. As per the scheme, it is mandatory for person entering government services on or after January 1, 2004 to contribute 10% of salary every months NPS. A matching contribution is required to be made by the employer to said account. the tax treatment under this scheme is as follows - Contribution by the employer to NPS is first under head of salaries in hand of the employee. Such contribution is deductible [ to the extent of 10% of the salary (14% of salary, if contribution is made by the central government/State government) of the employee ] under section 80CCD(2). Employee s contribution to NPs (to the extent of 10% of salary of the employee) is also deductible under section 80CCD(1). when pension is received out of the aforesaid amount it will be chargeable to tax in the hands of the recipient. Other Point An employee, holding civil post under state government is eligible for exemption u/s 10(10A)(i) of Income tax act. [ ITO (TDS), KOTTAYAM. V. Mahatma Gandhi University, 2019 (5) TMI 1373 - ITAT COCHIN ]