The Central Board of Direct Taxes (CBDT) has clarified that the pension received by a taxpayer from his former employer is taxable under the head “Salaries”. The Finance Act, 2018 has amended Section 16 of the Income–tax Act, 1961(“the Act”) to provide that a taxpayer having income chargeable under the head “Salaries” shall be allowed a deduction of ₹ 40,000/- or the amount of salary, whichever is less, for computing his taxable income. Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of ₹ 40,000/- or the amount of pension, whichever is less, under Section 16 of the Act.  

Earlier, the representations were received seeking clarification as to whether a taxpayer, who receives pension from his former employer, shall also be eligible to claim this deduction.