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.

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