Usually pension received by a retired employee is taxed under the
head ‘Income from Salary’, however pension received by family member is
taxed under the head ‘Income from Other Sources’. The tax treatment of
Pension is different in different situations –
*What
is Commuted Pension – At the time of retirement, you can choose to
receive a certain % of your pension in advance. Such pension received in
advance is called commuted pension. For e.g. – At the age of 60, you
decide to receive in advance 10% of your monthly pension of the next 10
years of Rs 10,000. This will be paid to you as a lump sum. Therefore,
Rs 1000x12x10 = 1,20,000 is your commuted pension. You will continue to
receive Rs 9,000 (your uncommuted pension) for the next 10 years until
you are 70 and post 70 years of age, you will be paid your full pension
of Rs 10,000.
*What
is Commuted Pension – At the time of retirement, you can choose to
receive a certain % of your pension in advance. Such pension received in
advance is called commuted pension. For e.g. – At the age of 60, you
decide to receive in advance 10% of your monthly pension of the next 10
years of Rs 10,000. This will be paid to you as a lump sum. Therefore,
Rs 1000x12x10 = 1,20,000 is your commuted pension. You will continue to
receive Rs 9,000 (your uncommuted pension) for the next 10 years until
you are 70 and post 70 years of age, you will be paid your full pension
of Rs 10,000.
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