Whether Pension is exempt from Income Tax would depend on various factors including the fact where you are employed. Taxation on Commuted pension
A commuted pension is a type of pension in which the pensioner receives a lump sum payment in lieu of traditional pension payments. Commuted pensions pay the lump sum based on the length of employment and the age of the pensioner. Following are the tax implications on commuted pension.
1) Government Employees : Wholly exempt.
2) Non-Government Employees
a) Where the employee receives gratuity, amount not exceeding the commuted value to the extent of 1/3rd of the pension is exempt.
b) In other cases : the commuted value of ½ of pension is exempt.