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.

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


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 term & 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.

ICICI Pru Guaranteed Pension Plan UIN 105N181V02


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