Pension Tax in India
According to pension act pension is defined as a periodical allowance or stipend granted on account of past service, particular merits etc. The three main components of pension are:
- Pension is a compensation for past service
- It owes its origin to a past employer-employee or master-servant relationship
- It is paid on the basis of an earlier relationship of an agreement of service as opposed to an agreement for service. This relationship terminates only on the death of the concerned employee.
Pension received from a former employer is taxable as 'Salary'. Hence, the various deductions available from salary income, including relief u/s 89(1) for the arrears of pension received would be granted to pensioners who receive their pension from, a nationalized bank, by the bank and in other cases their present Drawing & Disbursing Offices. Similarly, deductions from the amount of pension of standard deduction and adjustment of tax rebate u/s 88 and 88B shall be done by the concerned bank, at the time of deduction of tax at source from the pension, on furnishing of relevant details by the pensioner.
Pension to officials of UNO is exempt from taxation.
Under family pension a regular monthly amount is paid by the employer to a person belonging to the family of an employee in the event of death. Pension and family pension are qualitatively different. The former is paid during the lifetime of the employee while the latter is paid after his death to surviving family members. However, in case of family pension, since there is no employer-employee relationship between the payer and the payee, therefore, it is taxed as ' Income from Other Sources' in the hands of the nominee(s). In respect of family pension,deduction u/s 57(iia) of Rs. 15000 or 1/3rd of the amount received whichever is less, is available.
Under the Income Tax Act, a senior citizen is a person who at any time during the previous year has attained the age of 65 years or more. There are certain benefits available to senior citizen under the Income Tax Act:-
Tax rebate u/s 88B: Upto assessment year 1997-98, rebate on tax payable by a senior citizen was allowable provided the income was below a certain limit(for assessment year 1996-97,98-99,40% tax rebate was available to a senior citizen provided his income was below Rs. 1.2 Lakhs).Form assessment year 1998-99, the tax rebate is available to all senior citizen to the extent of the entire tax payable or Rs. 10000 whichever is less without any ceiling on the income. This rebate has been further enhanced to Rs. 15,000 from A.Y. 2001-2002 onwards. Rebate under this section has now been increased to Rs.20,000/- form A.Y. 2004-05 by the Finance Act 2003. This rebate is available to all senior citizens whether they are pensioners or self employed or traders etc.
The 1 out of 6 criteria for filing of income tax return under proviso to Sec. 139(1) shall not be applicable in case of senior citizen. However, if a senior citizen meets any of the four criteria, other then ownership of immovable property of subscription to a telephone, then return will have to be filed by him.
Other Benefits: The deduction available u/s 80D for medical insurance premium paid is to be increased to Rs. 15,000 for senior citizens. Secondly , the deduction available u/s 80DDB in respect of expenditure incurred on treatment of specified diseases is tobe increased to Rs. 60,000 for senior citizens. The above provisions shall come into effect from assessment year 2000-2001 onwards.