Individuals receive pension after their retirement, especially government employees. Such retired employees do not know how to treat the income from pension so received.
Let us understand in two different ways how pension is taxed
1) Pension received by the individual himself
When the individual receives pension himself, he has to treat the income as salary and file tax returns as a salaried individual would.
2) Pension received by the family
Pension received by the family is taxed as income from other sources. What is important to note that both an income received by the individual, as well as the family would be taxed. So, these are very much taxable and there is no tax free income here. You need to pay taxes on this income.
Who will issue form 16 for pension purposes?
There is often a question that arises as to who would issue the form 16 for the purpose of tax payment. It is important to note that the form 16 would be issued by the bank when you receive the pension.
What about taxation of PF and gratuity?
As regards taxation of provident fund and gratuity all depends on whether you are a government employee or not.
Let us treat the subject of PF and gratuity separately. In case you receive provident fund as a government employee, the same is exempted from tax. On the other hand, if you are a private sector employee and if you apply for the same before a continuous service of not less than 5 year, you would be taxed.
In short, for private sector employees PF is taxed if withdrawn before 5 years and exempted, if withdrawn before 5 years.
Gratuity is subject to exemptions as prescribed under certain limits.
Taxability of pension?
As regards pension, which we mentioned above, please remember that is very much taxable and you need to file returns, if the limit crosses the usual Rs 2.5 lakhs for a non senior citizen. On the other hand, if you are a senior citizen, your income tax exemption limit rises to Rs 3 lakhs. So, you would have to file tax returns, if and only if your taxable income is over Rs 3 lakhs.
For very senior citizens over the age of 80, there is no tax on income under Rs 5 lakhs.