Commutation of Pension – Its Taxability and other facts

Every salaried employee at the time of retirement receives retirement benefits from their employer, which is intended to secure life after retirement. The benefits are provided by employers to the employees for rendering long and unblemished service. One of the benefit mostly received by the employee is Pension. This benefit is added to income for that year and taxable under the head “Income from Salary”.

Pension received in periodic payment is termed as uncommuted pension and lump -sum payment made in lieu of a periodical pension, is termed as commuted pension.

Uncommuted pension is taxable as salary in the hands of a Government employee as well as a non-government employee.

Commuted pension received by government employees is wholly exempt from tax. Also in the case of Supreme Court and High Court Judges, the entire commuted value of pension is exempt.

In the case of commuted pension received by non-government employee, the maximum amount exempt from tax is restricted to the one-third of the total commuted pension, to which employee was entitled, where the employee also receives any gratuity. Otherwise, the exemption is limited to commuted value of ½ of the pension to which employee is entitled. is here to solve all your tax worries, be it relating to Tax Returns, Tax Support or Tax Planning. Just contact us; we are here to relieve you from all your tax worries. provides most hassle free tax return filing/ online return filing experience. Once you have collected, your salary certificate and other documents, we request you to please log in to or you can also directly mail at to submit the details. Upon receiving the documents, we would contact you to file your return of income.

2 thoughts on “Commutation of Pension – Its Taxability and other facts”

  1. I am retired and got commuted pension over Rs 3 Lacs + Gratuity Rs 10 Lacs+ Leave encashment of Rs 1.80 .I am aware of that Gratuity and Leave encashement is tax free. I am not sure about pension commuted i.e 1/3 rd . Is it taxable?

  2. I missed to mention that I was working for an private organization. Not Govt employee. Un commutted I have to add in Income that also I am aware of.
    Whether Pension received from Jeevan suraksha is taxable? this is un commuted pension. I need urgently reply so that I can prepare return and file it at the earliest to avoid rush period.

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