Millions spend their lives post the age of 60, through the pension, which is sometimes the only livelihood means that remains, in the old age. In the article, we will look towards the various Income tax provisions and Sections related to the income “Pension”.
The pension is usually paid out in India on a periodic i.e. monthly basis. The pensioners may also opt for commuted pension, which is paying of the income in a lump sum, once every year.
Pensioners should have to file taxes on both, pension and the income that they gain from other investments.
Defining Pension: The section 60, of the CPC, and the Pension Act’s Section 11, described pension as a stipend or a periodical or commuted allowance, for the past services rendered by a person to a public or private sector organization, on the basis of special, or other merits. The pension is always based on a prior agreement and ends when the employee dies.
The Actual Taxation
Just like other incomes accrued in India, the pension income is also taxed according to the Income Tax slabs fixed by the Government of India. All incomes that come under the head Salary (including Pension) are taxed upon, under the Section 192 of the Income Tax Act.
1. Whether tax (TDS) will be deducted on monthly pension?
Ans: Tax will be deducted from monthly pension on monthly prorata basis if estimated total annual pension crosses the threshold limit of Tax after taking into account proof of investments submitted by pensioners every year.
2. At what rate TDS on Pension will be deducted?
Ans: TDS rates applicable for FY 2022-23 (AY 2023-2024) are as follows:
(Rates are subject to change and Pensioners are requested to refer to the guidelines issued from the Income Tax Department from time to time)
3. What is the rebate available under section 87A of Income Tax Act, 1967?
Ans: Tax rebate of Rs 12,500/- is allowed if the total income does not exceed Rs.5,00,000/-.
4. Is it necessary to submit proof of investments made for availing Tax rebate & when?
Ans: Yes, proof of investments has to be submitted to Employees’ Pension Fund every year so that the actual investment made by the pensioner is considered for rebate at the time of calculating his/her final tax on pension payment. If no proof of investment is given in any FY then no rebate in tax will be allowed in that FY.
5. When to submit the proof of investment and to whom?
Ans: Proof of actual investments has to be submitted to the Employees’ Pension Fund every year as and when fresh investments are made in the current FY but before 31st December every year.
6. Till the time of submission of investment proof how will the tax liability be calculated?
Ans: While deducting TDS on monthly prorate basis, the investment declaration submitted by the pensioner will be considered and tax from April to December every year will be deducted as per the declaration. But, proof for investment as per the declaration submitted is not submitted by 31st December every year then monthly tax will proportionately increased after December month or it can be said that from the month of January, TDS will be deducted on the basis of actual investment made by the pensioner. If no proof of investment is given, no rebate in tax will be allowed for the current FY.
7. Whether submission of investment declaration will suffice for claiming tax rebate?
Ans: No. Submission of investment proof is a mandatory requirement for claiming tax rebate.
8. Whether it is necessary to submit proof of investment if the total annual pension does not cross the threshold limit for different age group of individuals?
Ans: No. In cases where the total annual pension does not cross the threshold limit for different age group of pensioners, they need not submit the investment proof.
9. Whether providing the PAN is mandatory by the Ex-employee Pensioner. What will be the implication of non-submission of PAN?
Ans: All Pensioners are requested to get their PAN noted at the Employees’ pension Fund by providing the self-attested copy of the PAN. Wherever PAN is not provided by the Pensioner, 20% of the tax will be deducted as per extant Income Tax guidelines.
10. In case of Family pensioner, whether TDS is applicable?
Ans: No. Since family pension does not come under the definition of “Salary” of Income Tax Rules, TDS is not applicable to it.
11. If pensioner has paid advance tax and requests not to deduct tax, whether bank may stop deducting tax on pension?
Ans: No. Bank is bound to deduct tax at source.