Is your pension taxable? Read more and find out.
What is Pension?
Pension is a monthly income which is paid to retired individuals post-employment. Pension can be received on a monthly or lump sum basis. The payout also depends on the type of pension plan selected during inception.
Taxation Rules for Pensioners
As per the Income Tax Act, 1961, money received in the form of pension from your employer is categorised as salary post retirement. Since it comes under salary, it is subject to income tax. Section 89(1) states a number of deductions on salary income that is provided to pensioners for receiving their salary through nationalised banks. Similarly, tax rebate adjustments and TDS application comes under Section 88 and 88B of the Income Tax Act, 1961.
There are two types of tax forms applicable to pensioners - ITR 1 and ITR 2.
ITR 1 Form: Also known as Sahaj Form, this is applicable to individuals who receive an income of up to Rs. 50 lakhs through:
- Income from a salary
- Income from a pension
- Income from a house property
- Income from other sources
ITR 2 Form: This form is for individuals who are not eligible to file taxes under the requirements of ITR 1 Form. ITR 2 is applicable to individuals who receive an income form:
- Income from a salary
- Income from a pension
- Income from a house property
- Income from other sources
- Income from capital gains
- Foreign income/assets
- Agricultural income above Rs. 5,000
There is no different process of filing an ITR for pensioners; individuals who receive pension on a monthly basis are taxed in the same way as they would have received regular salary.
As per the interim budget 2019, taxpayers with an annual income up to Rs. 5 lakh are subject to complete tax rebate. The standard deduction for salaried individuals has been increased from Rs. 40,000 to Rs. 50,000.
What about TDS?
As per the latest budget, the TDS exemption for pensioners and salaried individuals has been increased from Rs. 10,000 to Rs. 40,000. Individuals who have earnings from interests that amount to Rs. 40,000 or less will be exempt from TDS deduction.
Conclusion
The government has also initiated the Pradhan Mantri Shram Yogi Mandhan. This scheme provides a minimum pension of Rs. 3000 to workers from the unorganised sector when they reach the retirement age of 60 years. More information is likely to be announced soon regarding the same.
