Pension income which is paid by the employer at the time of retirement is subject to tax incidence and is taxed under the head salary income while filing of income tax return. So, if you wish to reduce this tax incidence and hence increase your take home amount as pension income to maintain a desired standard of living post-retirement here are some ways provided below which can be helpful:

Before, getting to know these way outs, it is worth mentioning that pension payment can be received by the retiree as either a lump-sum amount or commuted pension income or in periodic payments known as uncommuted pension amount.

Government employees receiving pension money as commuted amount are better off with complete tax-exemption while non-government employees get partial exemption on pension money. Also, as per the current provisions pension income is added to taxable salary and taxed at an individual's income tax slab rate.

So, here are the ways to reduce tax outgo on pension income:

1. Standard Deduction: This is a new provision introduced in the Union Budget 2018 under the Finance Act, 2018. The new clause replaces the earlier medical disbursement and transportation allowance allowed up to Rs. 15,000 and Rs. 19,200 respectively in a year whereas standard deduction allows reduction of a maximum of Rs. 40,000 against salary income in a year.

The provision of standard deduction also applies against pension income and as there is no medical or travel related rebate or allowance available to retirees, the clause is a welcome step as it reduces their taxable income and thus translates to lower tax out-go.

2. Section 80C deduction: To reduce the tax incidence on pension amount, retirees can capitalize on the section 80C provision which allows deduction of up to Rs. 1,50,000 on an annual basis on certain investments and expenses. It is to be remembered that the section allows rebate on a cumulative basis. Senior citizens can also invest in the senior citizen savimg scheme to reduce their overall tax liability.

3. Section 80 D deductions: Also, pension income can be put to purchase a senior citizen health insurance plan for which the tax-payer gets a deduction of up to Rs. 50,000 in a year against the premium amount paid. So, herein the allowed deduction will reduce the taxable component by the premium amount and hence reduce tax dues to the government.

4. Deduction from section 80TTB: As per the new sub-section 80TTB introduced under the Finance Act 2018, senior citizens now enjoy a deduction of up to Rs. 50,000 per year on interest income bank, post office and Co-operative society engaged in banking. So, to take the advantage, pension amount can be deposited in the bank account. Also, the said clause is applicable not only to term deposits with the bank but also on interest earnings on savings account.

5. Deduction from section 80DDB: Also for any pension amount incurred in the treatment of specified diseases of some dependent person including spouse, parents, children or sibling, the section allows a deduction of up to Rs. 1 lakh or the amount actually paid towards the treatment, whichever is lower to senior citizens. The provision hence will help you save tax on pension income.

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