Income Tax on retirement benefits

Retirement & Pension
Pay, Allowances and Advances
Income Tax

Some of the retirement benefits are fully or partially exempt from tax.

Pension

  • Pension is a periodical allowance received by an employee after his retirement, on account of past service, given by a former employer.
  • Periodical pension received by an employee is taxable under the head 'Salaries' as 'profits in lieu of Salaries' as provided in section 17(3).
  • When a lump-sum payment is made in lieu of a periodical pension, it is termed as commuted pension.
  • Commuted pension is tax-free in case of government employees (Section 10(10A))

Gratuity

  • Gratuity received by an employee of the central government, state government or any local authority is completely exempt from tax. (Section 10(10))

Leave Encashment

  • In case of government employees, it is fully exempt from tax. ( Section 10(10AA))

Voluntary Retirement Compensation

  • The benefits derived by an employee by opting VRS can also be considered as retirement benefit.
  • VRS is applicable to only those employees who have completed 10 years of . For income tax purposes, this compensation amount received is exempt up to Rs. 5,00,000/- if all the conditions under the scheme are fulfilled. (Sec. 10(10C))

Payment from Provident Fund

  • Any payment received from a Statutory Provident Fund, (i.e. to which the Provident Fund Act, 1925 applies) is exempt. (Sec. 10(11), Sec.10(12))
  • Any payment from any other provident fund notified by the Central Govt. is also exempt.  

Payment from Superannuation Fund

  • Payment from an Approved Superannuation Fund will be exempt provided the payment is made in the circumstances specified in the section viz. death, retirement and incapacitation. (Sec.10(13))

Comments

mandirabarua

Fri, 26/07/2013 - 21:52

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Dear sir

        I, Miss Mandira Barau, unmarried daughter of Late Rabindra Chandra Baraua, who was a Railway Employee, after his death on 10/09/2010 my mother got family pension and recently my mother late mrinalini Barau has died on 16/06/2013. 

     I, Miss Mnadira Barua is a State Government employee, want to know that shall I entile to get Family Pension as I am an unmarried daughter of my Deceased father.

What an informative post.Whether or not you agree that the rich individuals in the United States should pay more taxes, the truth is that the Internal Revenue Service has allowed a number of tax code loopholes. Through these loopholes, the resourceful can save money by exercising tax exemptions. Because tax rate really declines when annual income exceeds $1.5 million, there's definitely something at work. It's how the rich avoid taxes. Shouldn't you get a piece of the tax break action? You can pay for your taxes this year with an installment loan.
 

Abdul Wadud

Mon, 10/02/2014 - 10:19

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I am a retired railway emploee, sir if i give some money from my pension, suppose 5 lakh, I will have to pay tax for these 5 lakh or not?