–Vikraman
Where the annuity is received from a fund set up by the employer or the former employer, it is taxable as ‘Income from Salaries’. A standard deduction (up to ₹75,000 or ₹50,000, subject to the tax regime opted) is available against overall salary income (including such annuity income). Where the annuity is received from any other pension fund (i.e. not via employer), the periodic annuity received is taxable as ‘Income from Other Sources’. In both cases, this income is taxable at the applicable slab rates of the individual for the respective tax year.
However, tax exemptions are available towards commuted pension (when provided by the fund), subject to specified conditions. In employer pension funds, the commuted value of the pension that an employee is normally entitled to receive is subject to an exemption of 50% (if no gratuity is received) or one-third (if gratuity is received).
Such commuted value of pension is determined based on the age of the recipient, the state of health, the rate of interest and the officially recognized tables of mortality.
Other pension funds
For other pension funds, if approved under section 10(23AAB) of the Income-tax Act, the entire commuted value of the pension is fully exempt from tax.Funds approved under this section include pension schemes set up by Life Insurance Corp. or any other insurer approved by the insurance regulator.
Also, any payment from a superannuation fund to an employee towards commutation of an annuity on retirement or after a specified age or becoming incapacitated prior to such retirement is fully exempt from tax.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
If you have any personal finance query, write to us at mintmoney@livemint.com to get it answeredbyexperts.
