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<h1>Tax Exemption Clarified for Early Retirees: Only One-Third of Commuted Pension is Tax-Free u/s 10(10A)(i.</h1> The circular addresses the tax exemption status of lump sum payments made to government servants who retire prematurely and are absorbed into government-controlled entities. According to Section 10(10A)(i) of the Income Tax Act, only the commuted value of one-third of the pension is exempt from tax. The terminal benefit, calculated as twice the commuted value, is not considered a commuted pension and is taxable, subject to relief under Section 89(1). The circular instructs officers to revise assessments where entire commuted pensions were previously exempted and report actions by September 30, 1978.