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Taxability of Pension

Saurabh Aggarwal (Chartered Accountant) (371 Points)

09 June 2010

One of my client who is a resident female assessee has received pension of Rs 150000 on behalf of his dead husband.

She is a salaried class employed and in her form 16 his emplyer has given her deduction of 1/3 of pension i.e. 50000 asd has taken only 1,00,000 as her income u/h other sources and deducted tax at source accordingly.

Kindly tell me whether it is right or wrong because I am of a view that deduction should be given only for Rs. 15,000 u/s 57 as it is a case of Family Pension.

Kindly tell me the correct treatment along with the section.

Thanks & Regards

Saurabh Aggarwal

+91-9711385414

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4 Replies

G Aditya (Article) (289 Points)
Replied 10 June 2010

YOUR CASE FALLS UNDER CASE III AND I THINK U R RIGHT.

Pension is a payment made by the employer after the retirement/ death of the employee as a reward for past services, following table gives a broad tax treatment of pension:-

Case	Particulars	Tax treatment
Case 1	Pension is received from UNO by the employee or his family members	It is not chargeable to tax
Case 2	Family pensionreceived by the family members of armed forces (after the death of the employee)	It is exempt under section 10 (19) in some cases.
Case 3	Family pensionreceived by the family members of other cases (after the death of the employee)	It is taxable in the hands of recipients under section 56 under the head “income from other sources”. Standard deduction is available under section 57 which is 1/3 of such pension or Rs. 15000, whichever is lower.
Case 4	Pension received by an employee (during his lifetime) in any other cases.	Tax treatment depends on whether Pension is Commuted or Uncommuted (Refer Below).

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ajay lohiya (article) (69 Points)
Replied 10 June 2010

I agree with G Aditya

Poornima (Search on.... for knowledge) (129 Points)
Replied 10 June 2010

Hello Saurabh :

In case of income in the nature of family pension received by family of the employee in whose hand such amount is chargeable

Deduction is allowed to the extent of lower of (a) one-third of such income or (b) Rs. 15,000 (Rs. 12,000 up to the assessment year 1997-98).
For this purpose family pension means a regular monthly amount payable by the employer to a person belonging to the family of the employee in the event of his death.

So make it sure that the pension your assessee is getting is same as explained in the provision explained above.