Commuted value of Pension Received is Exempt from Tax [Section 10(10A)]

As per section 10(10A), any commuted pension, i.e., accumulated pension in lieu of monthly pension received by a Government employee is fully exempt from tax. Exemption is available only in respect of commuted pension and not in respect of un-commuted, i.e., monthly pension. Exemption in respect of commuted pension in case of a non-Government employee will be as follows:

Govt. employees, employees of local authorities and employees of statutory corporations

Any other employee

Fully Exempt

(a) If gratuity is not received Commuted value of half of pension which he is normally entitled to receive.

(b) If gratuity is also received Commuted value of 1/3rd of pension which he is normally entitled to receive.

Pension received by the employee is taxable under the head “Salaries”. However, the family pension received by the legal heirs after the death of the employee is taxable in the hands of the legal heir under the head “Income from other sources” because in this case there is no relationship of employer and employee. Treatment of family pension is discussed in detail under the head ‘Income from other sources’.