One of the most common questions that comes up when investing in retirement plans is – “is pension income taxable”. The simple answer is – yes, pension is a taxable income in India. However, the taxability of pension may differ based on its type. Read on to know more.
Is pension income taxable?
Yes, the income you receive as pension is taxable in India. For income tax calculation, pension is considered similar to your salary income and is taxed basis the regular income tax slab.
However, you can avail tax benefits on the premiums paid under your pension plan up to ₹ 1.5 lakh per annum under Section 80C of The Income Tax Act, 1961.
Types of pensions
While paying pension, most insurers provide the flexibility to choose the pension payout method. You may choose to receive your pension in regular instalments, or as a combination of lump sum and regular instalments.
Commuted pension:The portion of the pension plan that is paid as a lump sum amount at retirement is called commuted pension. This is paid in one go and can be used for any immediate financial needs right after retirement
Uncommuted pension:The portion of the pension that is paid in regular instalments over a period of time is called uncommuted pension. This acts as a regular source of income that can be used for your everyday expenses after retirement
How does commuted and uncommuted pension work?
Suppose your retirement fund amounts to ₹ 1 crore. You need ₹ 20 lakh immediately to make some house repairs and upgrades, so you decide to withdraw this sum from the retirement plan. This ₹ 20 lakh will be your commuted pension and will be given to you as a lump sum. The remaining ₹ 80 lakh will be paid to you over the course of your life in monthly payments as uncommuted pension.
How is the tax on pension calculated for both of these types?
1. Commuted pension:The tax on this type of pension can differ on the basis of the sector you work in. Here are some things to note.
- a. Commuted pension received by employees of a local authority or a corporation established by a Central, State or Provincial Act is exempt from tax under Section 10(10A)#
- b. Other employees have to pay tax on a certain part of their commuted pension as per section 10(10A)#:
- For employees who receive gratuity along with their pension, the tax exemption is equal to 1/3rd of the total amount of the commuted pension
- For employees who do not receive gratuity along with their pension, the tax exemption is equal to one half of such commuted pension
2. Uncommuted pension:This type of pension is fully taxable for all types of employees and industries
Tax saving Pension Plans offered by ICICI Pru Life
Below is a list of some of the key tax# saving pension plans by ICICI Prudential Life:
1. ICICI Pru Guaranteed Pension Plan Flexi
2. ICICI Pru Saral Pension Plan
3. ICICI Pru Guaranteed Pension Plan – Immediate and Deferred
This is a retirement plan that helps you save regularly during your earning years and ensures lifelong guaranteed`` income during your retirement. You have the freedom to choose the duration of premium payments and the date of starting your annuity income. You can get this income monthly, quarterly, half-yearly, or yearly, as per your choice. The plan also offers multiple options for you to customise the plan as per your requirements. It provides an option to extend the coverage of the plan to your spouse as well. The premiums paid under the policy are eligible for deductions up to ₹ 1.5 lakh per annum under Section 80C of The Income Tax Act, 1961.
This is an annuity plan that provides you with a guaranteed^ income for life in exchange for a one-time lump sum premium payment. With this plan, you can enjoy regular pension that is guaranteed for life. The annuity income is fixed at the time of purchasing the plan, and you start receiving the income immediately after the purchase. The premiums paid under the policy are eligible for deductions up to ₹ 1.5 lakh under Section 80C of The Income Tax Act, 1961.
ICICI Pru Guaranteed Pension Plan is an annuity plan that offers a guaranteed^ regular income for life. You can choose when you want to start receiving your income – immediately or at a later age (deferred period of up to 10 years). The plan also offers multiple plan options for you to customise the plan as per your requirements. The premiums paid under the policy are eligible for deductions up to ₹ 1.5 lakh under Section 80C of The Income Tax Act, 1961.
Investing in a retirement plan has many advantages such as a regular source of income during retirement, accessibility to purchase price in case of an eventuality or dire need, and more. To enjoy these benefits, you can invest in the ICICI Pru Guaranteed Pension plan. This plan offers:
- Guaranteed^ lifelong annuity with a single investment (Purchase Price)
- Option to start receiving annuity immediately or any time within 10 years from purchase
- Option to purchase the plan with your spouse or other family members* as Joint Life
- Flexibility to receive annuity amount monthly, quarterly, half-yearly or yearly as per your choice
- Return of Purchase Price option on death, critical illness or permanent disability~ due to accident
- Options for Early Return of Purchase Price from age 76 or at age 80
- High Purchase Price Benefit that gives you additional annuity^^ as per the purchase price slab and annuity option chosen
- Top-up option that lets you increase your annuity and also benefit from Higher Purchase Price
^Terms and Conditions applied
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^ Annuity will be payable in arrears. The frequency of annuity payments can be monthly, half-yearly, quarterly or annually as chosen by the annuitant at the time of purchasing the annuity. The annuity amount chosen at policy inception is guaranteed for life.
~ Withdrawal is allowed only under annuity options with Return of Purchase Price on Critical Illness (CI) or Permanent Disability due to an accident (PD) or Death. For more details on the risk factors, and the terms & conditions, please read the product brochure carefully before concluding the sale.
^^ Benefits in the form of additional annuity as a percentage of the annuity rates would be paid for Higher Purchase Prices.
* Joint-Life can be either your spouse, child, parent or sibling.
# Tax benefits are subject to conditions and provisions of the Income Tax Act, 1961. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.
#Tax benefits are subject to conditions under Section 80C, 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services tax and Cesses, if any will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.
ICICI Pru Guaranteed Pension Plan UIN: 105N181V03
ICICI Pru Guaranteed Pension Plan Flexi (non-linked non-participating individual deferred annuity plan) - UIN: 105N187V04
ICICI Pru Saral Pension Plan (non-linked non-participating single premium individual immediate annuity plan) - UIN: 105N184V05
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