Income tax on recovery of commuted pension

This query is : Resolved

Pravesh Sharma (Querist)
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02 March 2016 MY CLIENT RETIRE AS GOVERNMENT EMPLOYEE AND RECEIVED COMMUTED PENSION RS 15 LAKH. AMOUNT OF COMMUTED PENSION IS NOT TAXABLE AS GOVERNMENT EMPLOYEE

THE COMMUTED PENSION THEN RECEIVED BY HIM, WILL BE DEDUCTED IN INSTALMENT FORM HIS REGULAR PENSION OVER A PERIOD OF 15 YEAR

MY QUERY IS, WHAT IS TAXABLE PENSION, GROSS PENSION BEFORE RECOVERY OF COMMUTED PENSION OR THE NET AMOUNT AFTER RECOVERY OF COMMUTED PENSION.

GROSS PENSION = 30000
LESS - COMMUTED PENSION RECOVER= 8000
NET PENSION =22000

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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02 March 2016 Commutation of pension, is a facility granted to pensioner. The amount received on commutation of pension is fully exempt if received from the government or else at prescribed percentage if received from a non-government employee. In this case, as you observed, no tax is payable on Rs.15 lakh commuted pension received. The calculation of commuted pension is done for only 15 years, i.e one cannot commute the pension for more than 15 years.

Once the pension is commuted, the pension payable is reduced. In you example the pensioner will draw only Rs.22,000/- per month. In case a certificate is sought from the government for any of the fifteen years, the gross / net pension would be the same. In case of TDS too the deduction will be only on the net pension, which then is the taxable pension.

The taxable pension in the above illustration would be Rs.22,000/- p.m. only.