The commuted pension is fully exempt from income tax for government employees under section 10(10A) of I.T. Act, 1961. For a non-government employee who receives pension along with gratuity, 1/3rd of the 100% of the commuted pension is exempt. The rest is taxed, like their salary. If a non-government employee only receives a pension and not gratuity, 50% of the 100% of the commuted pension is exempt.