Chapter No. 04 - Salary - Pension - [Sec. 10(10A)]

. In case of a non-government employee while uncommuted pension is fully chargeable to tax, commuted pension is partly chargeable to tax and partly exempt from tax.

Amount of taxable pension will be computed as under:

UNCOMMUTED PENSION

 From 31^st July 2014 to 31^st December 2014 (1,000 x 5)                                            ₹ 5,000

From 1^st January 2015 to 31^st March 2015 (1,000 x .4 x 3)                                        ₹ 1,200

Total uncommuted pension chargeable to tax as salary                                           ₹ 6,200

COMMUTED PENSION

Commuted value of 60%                                                                                            ₹ 1,70,000

Commuted value of full pension (100/60 x 1,70,000)                                                ₹ 2,83,333

If X does not receive gratuity

Amount exempt (1/2 of commuted value of full pension) (1/2 x 2,83,333)              ₹ 1,41,667

Commuted pension chargeable to tax as salary (1,70,000 – 1,41,667)                    ₹ 28,333

 If X receives gratuity

Amount exempt (1/3 of commuted value of full pension) (1/3 x 2,83,333)              ₹ 94,444

Commuted pension chargeable to tax as salary (1,70,000 – 94,444)                       ₹ 75,556

 

Commuted pension tax treatment: part exempt, part taxable; exemption reduced where gratuity is received. Uncommuted pension is fully taxable as salary; commuted pension is partly exempt and partly taxable. Compute a notional full pension value from the commuted payment and apply an exemption fraction: if no gratuity is received, one half of the notional full pension value is exempt; if gratuity is received, one third is exempt. The remainder of the commuted payment is chargeable to tax as salary and must be added to taxable uncommuted pension to determine total taxable pension income.