A pension is an arrangement to provide an individual with an income when he is no longer earning a regular income from employment. It involves three essential features:

• Firstly, pension is a compensation for the past service,
• Secondly, it owes its relationship to a past employer-employee relationship or master servant relationship.
• Lastly, it is paid on the basis of earlier relationship or agreement of services as opposed to an agreement for ongoing service.

Pension received from a former employer is taxable as salary. As such the relevant provisions of TDS as specified in Section 192 and other relevant provisions are also applicable to pension income and tax is deductible on the same, as in the case of payment of salary. The common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal and / or contractual terms. Exemptions available Yes. The Section 10(18)(i) Stipulates that Pension amounts received by any individual who is in receipt of Param Vir Chakra, Maha Vir Chakra or other gallantry awards from Central or State Government are fully exempt from Income Tax. Except for above mentioned exemption, pension amount is taxable in all cases. It is taxable under Income from Salary as Section 17(1) (ii) defines salary to include pension as well. Special Exemption Category Pension to officials of UNO is exempt from taxation. Section 2 of the UN (Privilege & Immunities) Act, 1947 grants tax exemption to salaries / emoluments paid by U.N. Commutation of Pension Commutation of Pension means payment of lump sum amount in lieu of a portion of pension surrendered voluntarily by the pensioner based on duration of period in relation to the age. Exemptions “ Under Sections 10(10A) (i) (ii) and (iii) (i) Commutation of pension under Civil Pensions (Commutation) Rules or under any other scheme for Central, State or Local Authority employees (ii) For employees of nongovernmental employers, if the employee receives gratuity, the commuted value of 1/3 of the pension is exempt, otherwise, the commuted value of ½ of the pension is exempt (iii) Commutation of pension from fund under section 10(23AAB)

Points to ponder

• Where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax shall not exceed the limit i.e. Rs. 350000/-.
• Where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the aggregate amount exempt from income-tax shall not exceed the limit of Rs. 350000/-.
• Pension received by legal heir or widow of a deceased employee shall not be taxable as salary but taxable u/s 56 as income from other sources.
• In case of taxable commuted pension assess can claim relief u/s 89.

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