Income Tax on Pensioners

Pension is a form of income which a person gets in his retirement, which comes in every working individual’s life. It is also a stage in life where people get apprehensive about their finances due to lack of regular pay checks. And people get conscious about their lifestyle and worry about their expenses.

At such a time, pension plans ensures that you continue receiving regular income after your retirement, once the regular work pay checks cease. In India, government offers many pension schemes to inculcate savings habit in people, so that they can retire gracefully.

Income Tax Rules for Pensioners

Pension is a compensation offered by the past employer and employee for offering their service in the organization. Also note that, pension paid is based on a previous agreement of service and not on agreement for services. And as per the, Section 60 of the CPC and section 11 of the Pension Act, pension is an allowance or stipend given to a person for providing his service to the past organization which comes to an end upon the death of an employer. Hence, if a pensioner is getting their pension from a nationalised bank, a pensioner will get several deductions on salary income such as under section 89 (1). Also during tax deduction at source from the pension, adjustment will be done in terms of tax rebate under section 88 and 88 B.

Income Tax Form for Pensioners

Let us discuss the income tax form which is required for pensioners.

Form No. ITR 1 – Also known as Sahaj and is filed by the assessee. And this form is meant for the individuals whose source of income is salary and not for any business enterprises.

Also, pensioners can file their income tax returns by filling this form. This form is used by majority of salaried taxpayers who own one house and have their income which is taxable (Income from other sources) in addition to their pension.

Click to download Form No ITR 1.

Method of Filing Form No ITR 1  

Fill in the correct details and follow the below mentioned procedure:

1. Part A – In part A, the applicants are required to fill their personal details such as his name, birth date, email id and other related information.
2. Part B – In part B, the applicants are required to fill their Gross Total Income i.e. the salary from income.
3. Part C – In part C of the form, the applicants has to furnish his deductions as provided in Form 16 and total taxable income.
4. Now applicants are required to provide details pertaining in their operational bank account along with IFSC code and the branch and bank code of the same.
5. Now, verification of the details so furnished has to be done.
6. Also the applicants have to furnish details related to advance tax as well as payments made towards self-assessment tax in the part mentioned as Schedule IT.
7. Applicants are also required to furnish details related to TDS (Tax Deduction at Source) from salary, under the part mentioned as Schedule TDSI.
8. Under the part mentioned as Schedule TDS2, the applicant has to furnish details related to TDS having income sources other than salary.

Method of Tax Calculation for Pensioners

Generally pension is calculated through 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 un – commuted pension and is liable to be 100% taxed.

1. Commuted pension is received by the family of the tax payer, which is a lump sum payment and may be exempted from tax under the head income from other sources.
2. And un – commuted pension is received by the family of the tax payer, however, subjected to a minimum of Rs. 15,000 or 1 / 3^rd of the total pension amount is exempted from tax.
3. Also, in case of sudden death of the employee, family pension is given on a monthly basis to a family member of an employee by his employer.

How much tax do I pay on my Pension?

In case the income of an individual exceeds the exemption limit, that individual is required to file income tax returns. And the pension income from an employer is taxed as salary income while interest on various investments is taxed as income from other sources. However, when it comes to PPF (Public Provident Fund), the interest income will be tax exempted. In case of your taxable income is above the exemption limit, that individual is required to file their Income Tax Returns.