In India, pension received by a retired employee is generally treated as salary income and is taxed under the Income Tax Act. If a person receives a monthly pension, it is called uncommuted pension, and this amount is fully taxable according to the individual’s income tax slab.
However, if a person chooses to receive a part of the pension as a lump sum amount, it is known as commuted pension. In many cases, this lump sum pension can be fully or partially exempt from tax, depending on whether the person is a government or non-government employee and the conditions applicable.
Pensioners may also get the benefit of standard deduction and can claim deductions under sections like 80C, 80D, and others, if eligible.
Important points:
- Monthly pension is taxable as income
- Commuted pension (lump sum pension) may be fully or partly tax-free, depending on the case
- Uncommuted pension (monthly pension) is fully taxable
- Pensioners can also claim deductions and exemptions like other taxpayers