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.

What is Commuted pension and Uncommuted pension?

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

Taxability of Pension from Life Insurance

You are liable to pay applicable income tax on the pension received from an annuity life insurance plans. You can also claim a deduction of up to ₹ 1.5 lakh per annum for the premiums paid towards your annuity plan subject to conditions prescribed under Section 80C^# and section 80CCE of The Income Tax Act, 1961.

Taxability of Family Pension

In the event of the pensioner’s demise, the remaining pension is usually paid to the surviving family members. This is known as family pension. While family pension is taxable, families can claim a deduction on one-third of the pension amount or ₹ 15,000, whichever is less. In case they have opted for the new tax regime then the limit is 1/3^rd or ₹ 25,000, whichever is less under Section 57(iia)^# of The Income Tax Act, 1961.

What is Section 194P?

Section 194P^# of The Income Tax Act, 1961 came into effect on April 1, 2021. It provides conditions under which senior citizens aged 75 years and above are exempted from filing Income Tax Returns (ITR). Here are the conditions listed under this section:

• The senior citizen must be 75 years or older during the previous financial year
• The senior citizen should be a resident Indian in the previous year
• The senior citizen should have only pension income and interest income, and the interest should be earned from the same specified bank where they receive their pension
• The senior citizen needs to submit a declaration to the specified bank confirming their eligibility under Section 194P
• The bank from which the senior citizen receives their pension must be notified as a specified bank by the Central Government

COMP/DOC/Oct/2024/1510/7379

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

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.

^{^}T&Cs apply

• 2. ICICI Pru Saral Pension Plan

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.

^{^}T&Cs apply

• 3. ICICI Pru Guaranteed Pension Plan – Immediate and Deferred

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.

^{^}T&Cs apply

Conclusion

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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