Cases

Treatment

A. Uncommuted Pension received by any employee

Fully Taxable [Sec. 17(1)(ii)]

B. Commuted Pension (i.e lump sum payment) received by a

• Government employee

Fully exempted [Sec.10(10A)(i)]

• Local authority employee

Fully exempted [Sec.10(10A)(i)]

• Statutory corporation employee

Fully exempted [Sec.10(10A)(i)]

• Other employee

a.  If employee receives gratuity

1/3 rd of total value of commuted pension, which he is normally entitled, is exempted. [Sec. 10(10A)(iia)]

b.  If employee does not receive gratuity

of total value of commuted pension, which he is normally entitled, is exempted. [Sec. 10(10A)(iib)]

Notes:

• Effect of coverage of Payment of Gratuity Act: It is immaterial whether employee is covered by Payment of Gratuity Act or not.

• Pension received by a widow or legal: Pension received by a widow or legal heir of a deceased employee shall not be taxable as salary but taxable u/s 56 as Income from Other Sources. (for detail study refer chapter Income from other sources).

• Relief u/s 89: In case of taxable commuted pension, assessee can claim Relief u/s 89(1)