Pension

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 August 2011 Hi Expert,

My one of client who is getting cmmutted pension of Rs. 35500/- per month from Armed Force (Amry). I just want to konw its taxability in income tax.

Further
a. What is commutted or uncommutted pension meaning and its taxability.

pleae reply me appropriate answer.

CS Bijoy

CS Bijoy (Expert)
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17 August 2011 Commutation of Pension means payment of lump sum amount in lieu of a portion of pension surrendered voluntarily by the pensioner based on a duration of period in relation to the age. This is purely an optional facility provided by the Government to the pensioner. The duration is fixed with reference to age as number of years’ purchased. If the age at the next birthday of a retiring employee is 59 years, he will be entitled to get 10.46 year’s portion of pension he surrenders. If the pensioner is eligible for the pension of Rs.2000 and he opts to commute 33 1/3 % of the amount he will be entitled to receive Rs.65,113 as follows: 2000 x 33.33 x 8.14 x 12 / 100 Originally, the maximum portion of the pension that could be commuted was one half of the pension and it was reduced to 1/3

The maximum lump sum that a pension arrangement can offer is determined by HM Revenue & Customs (HMRC) as a condition of its tax approval. In a Personal Pension arrangement it is 25% of the fund, whereas under an occupational arrangement the limit is based on service with the employer and final remuneration at retirement date. The method of calculation depends on when a member joins the Scheme and hence which 'tax regime' applies to them