Income Tax for Pensioners 2019-2020

When you get a certain amount of money as pension from your employer, that amount of money becomes your salary after retirement and therefore it becomes taxable according to the provisions of the Income Tax Act, 1961.
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Acting Finance Minister Piyush Goyal announced the Interim Budget for the financial year recently and the announcement revealed a number of changes. A few new changes were proposed to the taxation slabs for salaried individuals.  

A pension is a monthly income that is paid out to retired individuals after they have retired from their place of employment. The payment modes for pensions differ based on the choice of the recipient. In some cases, former employees receive their pension in a lump-sum amount—commuted pension—or receive their pension on a monthly basis—uncommuted pension.  

What are the taxation rules for pensions? 

According to the rules of taxation, an uncommuted pension is viewed as a salary under the Income Tax Act, 1961, and is therefore taxable. However, Section 89(1) has a number of deductions on salary income that is provided to pensioners who receive their salary through nationalised banks. Similarly, banks make tax rebate adjustments under Section 88 and 88B when TDS is applied.  

Tax Forms

The Indian government has 4 types of income tax forms that are relevant to individuals. Of these 4 forms, ITR 1 and ITR 2 are those that are applicable to pensioners.  

ITR 1 

The ITR-1 form is also known as the Sahaj Form and is applicable to individuals who receive an income of up to Rs.50 lakh from the following modes: 

  • Income from a salary  
  • Income from a pension 
  • Income from a house property 
  • Income from other sources  
ITR 2 

The ITR-2 form is applicable to individuals who are not eligible to file taxes under the requirements of the ITR-1 form. The ITR-2 form is applicable to individuals who receive income from the following modes: 

  • Income from a salary  
  • Income from a pension 
  • Income from a house property 
  • Income from other sources  
  • Income from capital gains 
  • Foreign income/assets 
  • Agricultural income above Rs.5,000 
Income Tax for Pensioners

Tax Payment on Pension 

As stated earlier, individuals who receive their pension on a monthly basis are taxed in the same way as individuals who receive a regular salary. According to the recent announcement of the Interim Budget 2019, taxpayers with an annual income less than Rs.5 lakh will be entitled to a complete tax rebate. The tax slab for those with income above Rs.5 lakh will remain the same as the previous year. However, individuals who have an annual income of up to Rs.6.5 lakh can claim tax deductions if they have investments in provident funds and prescribed equities. Additionally, the standard deduction for salaried individuals and pensioners has been increased from Rs.40,000 to Rs.50,000.  

Pensioners will be required to file taxes for the amount they receive as a pension under salary income. In cases where the interest is earned on investments made, the interest amount is taxed as income from other sources. However, interest earned from investment instruments such as the Public Provident Fund (PPF) is completely exempt from any taxation.  

TDS on Pension 

Some pensioners who receive their salary through nationalised banks usually have a percentage of their income deducted as TDS. As per the proposed change announced by the finance minister, the TDS exemption for pensioners and salaried individuals is likely to be increased from Rs.10,000 to Rs.40,000, which means that individuals who have earnings from interests that amount to Rs.40,000 or less will be exempt from TDS.  

Pradhan Mantri Shram Yogi Mandhan Announced in Union Budget 2019-20 

In addition to the above-mentioned changes in tax rates, the Finance Minister also declared the introduction Pradhan Mantri Shram Yogi Mandhan will provide workers from the unorganised sector a minimum pension of Rs.3,000 every month when they reach the age of 60 years. More information on the new pension scheme is likely to be released when the launch date draws closer. 

Another major announcement that was also made in the budget announcement was a change in the tax administration that would facilitate the processing of all tax returns within 24 hours and the processing of refunds simultaneously. The announcement of the proposed changes in the Interim Budget 2019 for the coming financial year will most likely benefit pensioners and the changes in tax slabs would help increase savings.  

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