Pension Income Tax: Taxation Rules and Responsibilities for Senior Citizens

The last date to file your income tax return for Assessment Year 2024-25 is 31 July 2024. The pensioner or senior citizens’ tax rates are not the same as younger taxpayers, so they must understand the pension income tax to complete their tax responsibility.  The article covers everything you wish to learn about the Pension Income tax for this tax season.

Pension Income Tax

Retirees or senior citizens also have income tax responsibility, though not as rigid as younger individuals. Pensions are essential and regulate the source of income for many retirees, hence pensions are subject to tax as a salaried income under the 1961 Income Tax Act. 

The type of income from pension receives different tax treatment, such as the government pension issued by central or state government and private sector pension comes under income from salary tax and the family pension received by legal heirs comes under the income from other sources. 

The taxability of the pensions varies depending on the type of pension received, commuted or Uncommuted pension. 

  • In the commuted pension, the pensioners choose to receive the lump sum pension amount and the remaining in regular intervals throughout their life, which lessens the amount of your pension in the following case. 
  • In Uncommuted pension, the pensioners choose to receive their fixed pension at regular intervals. The Uncommuted pensions are treated as income from salary, taxable under the Income Tax Act as regular income.

The tax liability and taxability lie on the pension income tax slab for  Fiscal year 2023-24 under the new and old tax regime. The pensioner’s pension tax slab will be based on the tax regime they choose to pay their income tax. 

Pension Income Tax Slab Based on New/Old Tax Regime

The Indian government has made the tax regime as default tax regime, so unless the taxpayers choose the tax regime according to their financial needs, the new tax regime will apply to them. 

  • New Tax Regime:

The pension income tax for the senior citizen pensioner under the New Tax Regime for FY 2023-24 is as follows:

Taxable income  Tax rates 
Up to ₹3,00,000 0
₹3,00,000 to  ₹6,00,000 5%
₹6,00,000  to  ₹9,00,000 10%
₹9,00,000  to ₹12,00,000  15%
₹12,00,000 to  ₹15,00,000 20%
Above ₹15,00,000 30%
  • Old tax regime:

The senior pensioner citizens over 60 but below 80 years, would come under the following tax slab:

Taxable income  Tax rates 
Up to ₹3,00,000 0
₹3,00,000 to  ₹5,00,000 5%
₹5,00,000  to  ₹10,00,000 20%
Above ₹10,00,000  30%

For pensioners above 80 years of age, the following pension tax slab is applicable:

Taxable income  Tax rates 
Up to ₹5,00,000 0
₹5,00,000  to  ₹10,00,000 20%
Above ₹10,00,000  30%

Tax exemptions for Senior citizens 

The pension income is not taxable up to ₹3,00,000 and the taxes are exempted on the type of pension you received. According to the Indian Income tax rules, the following tax exemptions apply to the types of pension:

  • The commuted pension is exempted for government employees.
  • The commuted pension is partially exempted for non-government employees depending on whether the pensioners have received the gratuity along with the pension.
  •   If you receive the gratuity along with the commuted pension, one-third of the pension is exempted from pension income tax and the remaining will be treated as taxable income. 
  • However, if you haven’t received the gratuity along with the commuted pension, your half of the pension is taxable under the pension income tax laws.
  • Pensioners aged over 75 are exempted from pension tax if they have no annual income sources other than interest and pension income under section 194P passed in 2021. 
  • EPF amount is exempted if the employee has worked for more than five years and was terminated due to illness or any other circumstances, the EPF is exempted from taxes. 

Tax deductions for pensioners

The pensioners can reduce their amount of tax through tax deductions under the income tax laws just like regular taxpayers. The Income tax laws allow the following tax deduction under pension income tax:

  • Section 80C: The pensioners are eligible for a tax deduction of ₹1,50,000 when they invest the mentioned amount in qualified investment products, such as citizens saving schemes, government bonds, equity-linked savings schemes, etc.
  • Section 80D: The section allows pensioners a dedication of ₹50k for medical expenses and the premiums paid on health insurance plans (senior citizens).
  • Section 80DDB: The section allows pensioners to claim a tax deduction of ₹1,00,000 for critical illness treatment and expenses. 
  • Section 80 TTB: The section allows senior or super senior citizens to claim dedications up to ₹50,000 on earned interest income through fixed deposits, cooperative society, or post-office deposits. This means the pensioner’s taxpayers can save a good amount of taxes through 80TTB.  

How do you file your pension Income tax return? 

The senior citizens or retirees receiving pension can file their income tax for the FY 2023-24 in the following simple steps:

  • First, you should determine the type of pension you receive, commuted or Uncommuted pensions, and its taxability under the pension income tax. 
  • Next, obtain your pension statement or Form-16 issued by the employer, containing the details of the TDS deducted.
  • Now, calculate your pension taxable income with your annual income. 
  • Next, now see which pension income tax slab fits with your taxable income to check the tax rates. 
  • Next, check the tax deductions applicable to your circumstances and claim the tax deductions to reduce your taxes. 
  • Next, use Form 26AS to provide details of TDS and all your sources of income. 
  • Now, validate the details and file your pension income tax with the relevant ITR Form either ITR-1 or ITR-2 depending on your income tax limit. 

Pensioners should understand the pension income tax to enjoy worry-free retirement completing their tax responsibility. The last date to file your income tax is 31 July 2024, so be aware of your pension income taxability and exemptions.

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