Family pension in taxable but you can get other benefits: Check list of exemptions and eligibility
The pension received by any employee falls under ‘income from salary’ and is eligible for income tax. In many cases, the pension amount is also extended to the dependent family members, after death of the employee. Then, the amount is called family pension.
Pension is the periodic allowance given to a retired employee by an organisation s/he has worked for in the past. This compensation is based on a prior agreement of services between the employer and the employee. According to Section 60 of the CPC and Section 11 of the Pension Act, ‘Pension is an allowance (periodical) or a stipend given for any past service rendered to an organization and/or special merits’. The pension received by any employee falls under ‘income from salary’ and is eligible for income tax. In many cases, the pension amount is also extended to the dependent family members, after death of the employee. Then, the amount is called family pension. Just like the pension, the family pension too is taxable.
Heena Arora, Finance & Marketing Head of All India ITR explained that taxes on family pension are to be taxed in the same way as the Salary Income of an Individual. "In case the total income including the family pension of an Individual is more than the taxable limit, it shall be chargeable to tax," she told Zee Business Online while adding that the family pension is mentioned in Form ITR – 1.
However, there are certain cases where you can get exemption too. The family pension can be of two types - ‘commuted’ and ‘uncommuted’.
Tapati Ghose, Partner, Deloitte India and Prashanth G, Deputy Manager with Deloitte Haskins and Sells LLP explained, "If this pension is commuted or is a lump sum payment, it is not taxable. On the other hand, uncommuted pension received by a family member is exempt to the extent of lower of Rs 15,000 or 1/3rd of the uncommuted pension received." This basically means that 33.33 per cent of your income is tax free in this case.
"The individual has to report the gross pension amount received in “Schedule OS” under any other income. In addition, the individual has to report the deduction available in deduction under section 57 in the same schedule," the duo added.
Another case where you can get tax benefit is if a member of armed forces passes away during operational duties. In this case, the family pension is completely exempted from tax. "However, family pension received by widow or children or nominated heirs of the member of armed forces of the government, where the death of such member has occurred in the course of operational duties and subject to conditions, would be completely exempt from taxes," the Deloitte experts added.