BackPension income is treated as salary for computing tax
For age between 60 and 80 years, the basic exemption for FY13 is `2.5 lakh.
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My mother is 64 years old and gets pension as a government employee. She also has some interest income from investments. Does she need to file returns?
—Sandip
Tax returns need to be filed if the taxable income of an individual taxpayer exceeds the basic exemption limit. For age between 60 and 80 years, the basic exemption for FY13 is 2.5 lakh.
Pension income (assuming this is periodic pension from her employer) is taxable as salary income and interest on investments are taxable as income from other sources. In some investment instruments, such as Public Provident Fund (PPF), the interest income is tax-free.
Hence, if your mother’s taxable income—pension income plus taxable interest income minus any investments eligible for deduction (such as PPF, life insurance premium, health premium and so on)—exceeds 2.5 lakh, she would be required to file a return for FY13. This is presuming pension and interest are her only sources of income.
However, if your mother (presuming she ordinarily resides in India) has any assets outside India or signing authority in a bank account outside India, she will need to file her tax return electronically, irrespective of her income level.
I plan to take voluntary retirement next year. I will get gratuity and pension when I retire. What is their tax treatment?
—Srijan
Assuming that your employer is covered under the Payment of Gratuity Act, 1972 (POGA), an exemption from gratuity shall be computed as per the prescribed formula up to 10 lakh. Any gratuity received in excess of 10 lakh will be taxable in your hands. Further, if you have received any gratuity in any of the earlier FYs from your former employer(s) and have claimed the same as exempt, then only the balance gratuity amount—difference between 10 lakh and the amount claimed as exempt earlier—can be claimed in the current FY.
In case your employer is not covered under POGA, the quantum of gratuity and exemption shall differ.
Pension is generally taxable. In case you choose to commute pension (take a lump sum instead of periodical payment), a portion of the pension can be claimed as exempt. Since you will also receive gratuity, the commuted value of one-third of the pension received can be claimed as exempt from tax. The uncommuted pension (the periodical payment of pension) shall be taxable as salary.
You can invest in specified investment avenues to reduce your tax liability, such as PPF, National Savings Certificates, five-year bank fixed deposits, unit-linked insurance plans and so on to avail an exemption up to 1 lakh per FY under section 80C of the Income-tax Act.
Any voluntary retirement scheme (VRS) also has a lump sum component, which could also be exempt if the VRS of the employee is as per the relevant income-tax guidelines.
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