Did you know that people who live and make ends meet via their pension are also subject to income tax. A pension is a monthly payment from the government to those who have reached or passed the statutory retirement age and to certain widows and disabled individuals. Additionally, a pension is provided to a salaried worker who retreats from employment, generally due to old age or poor health.

Income tax regulations for pensioners

A "pension" is a periodic payment or stipend paid for prior service to an organisation and particular qualities under Section 60 of the CPC and Section 11 of the Pension Act. To begin with, a pension is a payment made in exchange for previous work done by an employer or employee. An earlier service contract makes pension payments; they do not follow a death-only termination clause.

It is crucial to remember that the pension sum received from a former employer is taxed under the "Salary" heading. This leads to several deductions from salary income, such as those allowed under section 89(1) for officials and those who get their pensions from a nationalised bank. Similarly, the bank adjusts the tax rebate under sections 88 and 88B during the tax withholding at source from the pension.

New Tax Return Regulations for 2023

Nirmala Sitharaman, the finance minister, stated during the presentation of the union budget in 2023 that retired people over 75 would not be required to file income tax returns for the fiscal year 2022–2023. Seniors over 75 who only have a pension as a source of income must abide by this rule.

It is crucial to make clear that seniors over 75 are not exempt from paying taxes; instead, provided they satisfy specific requirements, they are only exempt from submitting an income tax return (ITR). Seniors are only excused from submitting income tax returns if the interest income is generated in the same bank from where the pension is taken, which is another crucial point to bear.

Eligibility for ITR Exemption

Senior persons who satisfy the following requirements are eligible for ITR exemption:

• Should be a citizen of India
• During the fiscal year 2022–2023, you must be 75 years or older.
• They must have a bank account with the designated bank that the government has selected.
• The pension is the sole permitted source of income for seniors. The bank from which they receive their retirement should also provide them with interest income. In other words, a senior should only have one bank account that they utilise to get their pension.
• The pensioner must provide a declaration in writing to the designated bank. All pertinent information should be included in this declaration.

What Category Of Income Should Pension Income Be Reported Under?

We must break our conversation into two sections to discover the solution to this.

• If the pensioner is getting a pension for himself
• When the pension is paid to family members

In the first case, income should be revealed.

• Corresponding to salary income and as indicated on form ITR-1
• As most of the pensioner's income comes from the bank and not the employer, the bank's TAN must be provided for claiming any TDS that may have been applied.
• When income is reported as salary income, tax filers get confused about the credentials needed to enter. Your previous employer's information will be used as the employer’s details.

(The tax ramifications that would come into play if a pensioner received the money are discussed below.)

After the pension holder's death, if family members receive the pension, it must be reported as income from other sources. The pension does not accumulate due to any services the family members have provided to the company. Thus, that is the explanation. Family members are EXEMPT from paying taxes on commuted pensions or lump sum payments.

Uncommuted pension, or the pension that family members get regularly, is exempt up to a maximum of Rs. 15,000 or 1/3 of the pension amount.

Form for Pensioners' Income Tax

The Indian government offers four different forms for filing individual income taxes. ITR 1 and ITR 2 are the forms out of these four that pensioners must use.

1. SAHAJ OR ITR-1 The Sahaj Form, commonly known as the ITR-1 form, is used by those who earn up to Rs. 50 lakhs in income from the following sources:

• Paychecks from salaries
• earnings from a pension
• Gains from a residential property
• Warnings from unrelated sources

2. ITR Form 2 People who do not qualify to submit taxes under the ITR-1 form's conditions should use the ITR-2 form. Those who earn income in the following ways are eligible to use the ITR-2 form:

• Paychecks from salaries
• earnings from a pension
• Gains from a residential property
• Warnings from unrelated sources

ITR Filing Procedure for Pensioners

Pensioners do not need to put in more time or effort while paying their ITR. It is a standard and easy procedure, similar to filing an ITR Form-1.

1. To complete the application correctly, applicants must provide the requested information. The information includes your name, birth date, email address, and other pertinent facts.
2. The applicant must provide information regarding their total gross income, which includes their salary.
3. The applicant must provide information regarding each deduction listed on form 16.
4. The precise tax calculation and the current tax status must be given in this section.
5. The applicant must include information on advance tax and payments made toward self-assessment tax under the heading "Scheduled IT."
6. The applicant is required to supply information on TDS from pay under the heading "Scheduled TDS1" there.
7. The applicant must include information about any Scheduled TDS2 that receives revenue from sources other than salaries under the heading "Scheduled TDS2."

Note: In addition to providing the IFSC code, the branch, and the bank code, the applicant must also submit information about his active bank account.

You may now access the E-Submitting site to begin filing ITRs for pensioners after completing the form in the way specified and logging in.

Income Tax Calculation for Pensioners

Pension benefits are taxed along with salary income. In this case, the pension amount is taxed on your income tax return under the heading "Salary." The possibility of receiving a commuted pension, a lump sum payment rather than a monthly income, exists. On the other hand, a periodic pension, also known as an uncommuted pension, may be utterly taxable as pay.

Suppose a converted pension is received as a lump sum payment. In that case, it may sometimes be free from tax, similar to a pension received by a member of your family that is subject to taxation under the heading income from "other sources." Additionally, any uncommuted pension received by a family member is exempt up to Rs. 15,000 or 1/3 of the pension's total value, whichever is less.

However, any pension from the United Nations Organization is permitted to be free from tax, as is pension received by family members of armed forces, under section 2 of the UN Privilege and Immunities Act, 1947.

According to section 57, a family pension is a regular payment made by an employer to an employee’s family member in the tragic event of the employee's passing. Family pension is taxed as Income from Other Sources in this situation since there is no employer-employee connection.

What Percentage of an Individual's Pension is Subject to Tax?

A person must submit tax returns if their taxable income exceeds their exemption amount. While interest from other assets is taxed as income from other sources, pension income from an employer is taxed as salary income. The interest income is not subject to taxes when it comes to Public Provident Funds (PPF).

You must submit your income tax returns if the pensioner's taxable income,, which includes pension plus taxable interest, fewer investments like PPF and health premiums that qualify for a deduction, exceeds the exemption threshold in an assessment year. The commuted pension is tax-free for personnel of central/state governments and the armed forces covered by central/state legislation.

The same is only partly applicable to non-government workers. If non-government workers get a pension and a gratuity, only one-third of the pension is free; the other portion is subject to payroll taxes, assuming that the whole pension is converted. Employees outside the government who only get pension benefits will be subject to tax on half of that sum if 100% of it is commuted.

Pensioned TDS

If you get your pension from a nationalised bank as a pensioner, TDS regulations apply just as they do for salary income. Chapter VIA permits deductions for nationalised banks. Similarly, banks are allowed to provide relief for any pension arrears under section 89(1). It is crucial to remember that family pensions are not subject to section 192 of the Income Tax Act of 1961. Hence no TDS is taken from them.