Income Tax for Pensioners

Income Tax for Pensioners: Overview

Pensioner is a retired individual who lives his life and takes care of his day to day expenses with the help of pension amount received by him. Pension is a periodic allowance given to an individual by the organization that he has worked for in the past, post retirement of his services from the organization. It is a kind of compensation offered to an employee by his former employer in lieu of services offered by him to the organization. Pension is based on a prior agreement of services between the employer and the employee and is not based on any agreement for service. Agreement of Service stands valid till the employee is working with the firm, whereas, an Agreement for Service ends only when the employee is dead.

According to 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’.

The Pension amount so received by the pensioner from his former employer is taxable Income Tax.  Pensioners receiving their pension from any nationalized bank or disbursing and drawing officers get several deductions on their salaried income Under Section 89(1) of the 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

The government of India has prescribed four Income Tax Return forms to be used by HUF’S and individuals.

Form No.ITR.1: This form is also known as Sahaj (easy) form and can be used by individuals who wish to file their returns. However, only salaried individuals who have salary as their only source of income are free to file their returns using this form. People having various source of income from any Business, Profession or Capital Gains are not allowed to file their returns using this form.

This form is the simplest of all the forms available for the purpose of filing one’s IT Returns. However, people belonging to the below mentioned category may file their returns with the help of this form:

  • Salaried Individuals or Pensioners
  • Individuals who have earned income from a house property. This, however, does not include cases where losses have been registered and carried forward from the preceding year.
  • Individual having other sources of income. Earnings in the form of lottery winnings or horse race winnings are not applicable.

Method of Filling Form No ITR.1:

The tax payer has to fill in the correct details pertaining to him in the space provided at the form in the below mentioned manner:

  1. Part A: The applicant has to fill in his personal details such as his name, birth date, email id and other related information.
  2. Part B: The applicant has to fill in his Gross Total Income i.e. the salary from income. The information so provided must be same as furnished in Form 16 and Form 12BA.
  3. Part C: The applicant has to furnish his deductions as provided in Form 16 and total taxable income.
  4. Part D: The exact computation of tax along with the status of tax must be provided in this category.
  5. The applicant has to enter details pertaining to his running bank account along with IFSC code and the branch and bank code of the same.
  6. Verification of the details so furnished has to be done.
  7. Under the part mentioned as Schedule IT, the applicant has to furnish details related to advance tax as well as payments made towards self-assessment tax.
  8. Under the part mentioned as Schedule TDSI, the applicant has to furnish details related to TDS from salary.
  9. Under the part mentioned as Schedule TDS2, the applicant has to furnish details related to TDS having income sources other than salary.

After the pensioner fills the application form in the prescribed manner, he can choose to e-file the form through 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 Assesse will receive ITR-V. This ITR-V has to be mandatorily submitted by him to the nearest  Income Tax department branch via post within a period of 120 days.

Method of Tax Calculation for pensioners

Pension is generally taxed on one’s income earned through salary under the head of salary in one’s ITR form. Pension is either paid in a monthly or as a lump sum amount and is known as commuted pension, whereas, pensions paid on a periodical basis is known as uncommuted pension and is liable to be 100% taxed.

  • Commuted pension received by one’s family members, which has been received as a lump sum payment may be exempted from tax under the head ‘income 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 received from the UNO is 100% exempted from tax as the pension so received is generally given to Armed Forces.
  • Family pension is given on a monthly basis 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 has to file an ITR if his taxable income falls above the exemption limit. Income earned via pension is treated as salary income and is taxed under the head ‘income from salary’, whereas, income earned via investments is taxed under the head ‘income from other sources’. Income earned via interests on PPF amount is exempted from tax.

The pensioner in order to file his ITR has to ascertain his total income. For this, he needs to compute his taxable income by adding his pension amount to the total taxable interest and subtract the valid deductions, such as PPF investments interest, health premiums and other such related deductions. If he finds out that his total income is above the exemption limit, then he has to file an ITR.

Central/State Government employees as well as retired defense services individuals are not liable to pay any kind of tax on the commuted pension received by them.

However, non-government employees are partially exempted from paying taxes on commuted pension received by them. If such employees have been receiving gratuity along with pension amount, then a commuted pension amounting up to 1/3rd of the pension amount is tax exempted. The individual has to bear taxes on rest of the amount i.e. 2/3rd of the pension amount along with the gratuity amount under the head ‘income from salary’. For employees receiving only pension in the form of commuted pension half of the pension amount is tax exempted.

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