PENSION
PENSION
Pension is a payment made by the employer after the
retirement/death of the employee as a reward for past service.
Pension is normally paid as a periodical payment on monthly basis
but certain employers may also allow an employee to forgo a portion
of pension and receive a lumpsum amount by surrendering such
portion of pension. This is know as commutation of pension.
The uncommuted pension is received periodically.
Govt employees for the purpose of Pension includes employees of
Central Government, State Government, Local Authority and
Statutory Corporation.
TAX TREATMENT OF PENSION
Tax treatment of Pension
A) Uncommuted
b) Commuted /
pension/ Periodic
Lumpsum Pension
pension/ Normal
pension
NON-GOVT.
GOVT. Employees
Employees
FULLY Taxable for
both GOVT. AND
NON-GOVT. FULLY Employees Employees NOT
Employees EXEMPLT receiving Gratuity Receiving Gratuity
Exemption : 1/3 of Exemption: ½ of
Actual/Full value of Actual/Full Value of
Commuted Pension Commuted Pension
Pension received by Government Employee
Pension received by Government Employee
PARTICULARS TAXABILITY ₹ ₹
Uncommuted Pension Received Fully Taxable XXX
Fully Exempted
Commuted Pension Received Lumpsum XXX
Less: Exemption u/s 10(10A)(i) Full Exempt NIL
TAXABLE PENSION XXXX
NON-GOVERNMENT EMPLOYEES –
RECEIVING GRATUITY
NON-GOVERNMENT EMPLOYEES - WHO RECEIVES
GRATUITY
Particulars Taxability Rs. Rs.
Uncommuted Pension Fully Taxable XXX
Commuted Pension Partially Taxable XXX
Less: 1/3 of Actual (full) value of
Commuted Pension (AVCP) (XXX) XXX
Taxable Pension XXX
NON-GOVERNMENT EMPLOYEES –
NOT RECEIVING GRATUITY
NON-GOVERNMENT EMPLOYEES - WHO DOES NOT RECEIVES
GRATUITY
Particulars Taxability Rs. Rs.
Uncommuted Pension Fully Taxable XXX
Commuted Pension Partially Taxable XXX
Less: 1/2 of Actual (full) value of PT
Commuted Pension PE(XXX) XXX
Taxable Pension XXX
Pension received by Family members of Armed forces
Pension received by Family members of Armed forces
Particulars Taxability Rs.
Pension Received XXX
Fully Exempt
Less: Exemption u/s 10(19) XXX
Taxable Pension NIL
Pension received by Family members in any other case
(except the Pension received by Family members of Armed forces )
It is taxable in the hands of recipient under section 56 under the head “ Income
from other sources”
Standard deduction is available u/s 57 which is
1/3(33.33%) of such pension
or
₹15,000 which ever is lower
Family pension received by Family members in any
other case
Family pension received by Family members in any other
case
Particulars Rs. Rs.
Family Pension Received XXX
Less: Exemption being least of the
following u/s 57(iia)
a)33.33% of Family Pension XXX
b) Maximum Limit WIL 15,000 (XXX)
Taxable Pension XXX
Pension received from UNO
• Pension received from UNO by the employee or his family members
is- NOT chargeable to tax.
Treatment as Govt. Employees or Non-Govt. Employees
For the purpose of Central/ State Employees of Local Employees of Other Employees
taxation of Government Authorities Statutory
different receipts Employees Corporations
Leave Encashment Govt. Non Govt. Non Govt. Non Govt.
Gratuity Govt. Govt. Non Govt. Non Govt.
Commuted Pension Govt Govt. Govt. Non Govt.
PROVIDENT FUND
Provident fund
Provident fund scheme is a scheme intended to give substantial benefits to an employee at the
time of his retirement.
This program is provided by the Employment Provident Fund Organization (EPFO)
Under this scheme, a specified sum is deducted from the salary of the employee as his
contribution towards the fund.
The employer also generally contributes the same amount out of his pocket, to the fund.
The contribution of the employer and the employee are invested in approved securities.
Interest earned thereon is also credited to the account of the employee.
PROVIDENT FUND
Thus, the credit balance in a provident fund account of an employee consists of the
following:
(i) Employee’s contribution
(ii) Interest on employee’s contribution
(iii) Employer’s contribution
(iv) Interest on employer’s contribution
The accumulated balance is paid to the employee at the time of his retirement or resignation.
In the case of death of the employee, the same is paid to his legal heirs.
The provident fund represents an important source of small savings available to the
Government.
Hence, the Income-tax Act, 1961 gives certain deductions on savings in a provident fund
account.
Types of PROVIDENT FUND
(i) Recognized Provident Fund (RPF)
Recognized provident fund means a provident fund recognized by the Commissioner of Income-tax for the purposes
of Income-tax.
It is governed by Part A of Schedule IV to the Income-tax Act, 1961. This schedule contains various rules regarding the
following:
(a) Recognition of the fund
(b) Employee’s and employer’s contribution to the fund
(c) Treatment of accumulated balance etc.
According to this Act, any person who employs 20 or more employees, is under obligation to register himself under
PF Act 1952. However, there is no restriction if the employer and employees of such establishment wish to start
scheme even if the number of employees is less than 20.
• A fund constituted under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 will also be
a Recognized Provident Fund.
Types of PROVIDENT FUND
ii) Unrecognized Provident Fund (URPF) - A fund not recognized by the Commissioner of Income-tax is
Unrecognized Provident Fund.
iii) Statutory Provident Fund (SPF)- The SPF is governed by Provident Funds Act, 1925.
It applies to employees of government, railways, semi-government institutions, local bodies, universities and all
recognized educational institutions.
iv) Public Provident Fund (PPF)- Public provident fund is operated under the Public Provident Fund Act, 1968.
A membership of the fund is open to every individual though it is ideally suited to self-employed people.
A salaried employee may also contribute to PPF in addition to the fund operated by his employer.
An individual may contribute to the fund on his own behalf as also on behalf of a minor of whom he is the guardian.
Taxability of PROVIDENT FUND
Particulars Statutory PF Recognized PF Unrecognized PF Public PF
1) Employee’s Deduction u/s 80 C Deduction u/s 80 C No deduction Deduction u/s 80 C
contribution from GTI from GTI from GTI
2) Employer’s Fully Exempt from Exempt up to 12% Fully Exempt from Not applicable as
contribution Tax of **Salary. Tax there is only
Anything in excess assessee’s
of 12% is taxable contribution
3) Interest on PF Fully Exempt from Exempt up to Fully Exempt from Fully Exempt from
Tax 9.5% p.a Tax Tax
Anything in excess
of 9.5% is taxable
Salary for PF includes :
Basic Pay + DA(forming part of salary/ EIRB) + Commission as a % on sales/
turnover
Taxability of PROVIDENT FUND
Particulars Statutory PF Recognized PF Unrecognized PF Public PF
4) Repayment of Fully Exempt from Fully Exempt Employer’s Fully Exempt from
lumpsum amount at Tax from Tax contribution and Tax
the time of interest thereon is
retirement, taxed as salary. –
resignation, Fully Taxable
termination Employee’s
contribution is not
taxable
Interest on
Employee’s
contribution is
taxable under
‘Income from
Other Sources’.
