(A) Tax Treatment of Uncommuted Pension. Uncommuted pension refers to the periodic! regular pension (generally monthly) received by an employee from ex-employer after retirement and until such an employee dies.
Tax Treatment. Fully Taxable whether the employee is a government employee or non- government employee.
It is taxable as salary income of such an ex-employee.
(B) Tax Treatment of Commuted Pension. Commuted pension refers to lump sum amount received by an employee from his employer in lieu of periodical pension. When an employee receives such lump sum amount, it is called communtation of pension.
B(I) For all types of Government Employees. Fully exempt.
Meaning of a Government Employee. It includes
Employees of Central Government; or
Employees of State Government; or
Employees of Local Authority; or
Employees of a corporation set up under Central State or Provincial Act or under the Civil Pensions (Commutation) rules of the Central Government; or
Employees of public sector undertakings; or
Judges of Supreme Court or High Courts of India.
Disability Pension given to Armed Forces Personnels—It is fully exempted as per letter F.No. 200/5 1/991TA-I issued by CBDT dated 6-5-2000.
B(II). For Non-Government Employees. Any amount received on commutation of pension shall be exempt as per the provisions of section 10( 10A)
B(II)(a). If employee receives gratuity also. The exempted amount shall be commuted value of one-third (1/3) of pension which he is normally entitled to receive.
B(II)(b). If employee does not receive gratuity. The exempted amount shall be commuted value of one-half (1/2)_of such pension.