PF, gratuity, leave encashment, pension commutation and all income tax benefits for retired employees released in a brochure by income tax dept
The Income Tax Department has released a new brochure which mentions all the benefits under the Income Tax Act, 1961 which retired employees, both private and public sector, can avail. This brochure considers the reader to be at least 60 years old and in receipt of various retirement benefits like gratuity, commuted pension, leave encashment, GRF, etc.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} "This is a useful publication for retired taxpayers as most of them do not have full-time consultants (or cannot afford) to clarify their doubts. I recollect a case where a retired senior civil servant took up consultancy work and claimed income under Section 44ADA but missed paying advance tax on the belief that citizens over the age of 60 years need not pay advance tax. He had to pay huge interest for non-Consultancy receipts that are taxable as income from business and profession and once a senior citizen offers income under this head advance tax liability is cast on them. Similarly, a retired ED of PSU bank made a claim of retirement benefit as applicable to retired Government officers without realising that he was a semi government officer,” says Ramakrishnan Srinivasan, former chief commissioner of Income Tax Department.
Read below to know what the income tax department said about tax benefits for retired employees.
What did the Income Tax department brochure say about retired employees?
I am a retired employee of 60 years. I am in receipt of various retirement benefits like gratuity, commuted pension, leave encashment, GPF, etc. I have questions regarding the taxability of these benefits in my hands to which I seek answers/clarification. The same are listed out as under:Q1. What is the basic exemption limit for retired employees like me under Income Tax Act, 1961? Is the Pension received after retirement taxable?
Answer: Currently, there are two tax regimes. The choice of tax regime is left to the taxpayer:a:hover{text-decoration:none;} .liveEventMain_widget{margin-top:15px;padding-top:24px;border-top:2px solid #000;position:relative;font-family:Montserrat;} .liveEvent_slider{position:relative;overflow:hidden;} .liveEvent_slider ul{white-space:nowrap;list-style:none;margin-top:12px;} .liveEvent_slider ul.sliderContainer{margin-bottom:30px;} .liveEvent_slider ul li{white-space:normal;width:282px;vertical-align:top;display:inline-block;margin-right:12px;border-radius:12px;box-shadow: 0px 4px 12px 0px #2407461F;background-color:#fff;overflow: hidden;} .images_wrap{position:relative;} .images_wrap .cover_img{object-fit:cover;object-position:center;border-top-left-radius:4px;border-top-right-radius:4px;} .images_wrap .author_img{position:absolute;left:10px;top:13px;border-radius:10px;} .images_wrap::before{background-image: linear-gradient(180deg, rgba(11, 11, 46, 0) 20.31%, rgba(11, 11, 46, .6) 61.46%, #0b0b2e);content: "";height: 100%;left: 0;position: absolute;right: 0;width: 100%;} .liveEventMain_widget .details{padding:12px;} .liveEventMain_widget .category{font-size:12px;line-height:14px;font-weight:700;color:#6a11b0;margin-bottom:8px;} .liveEventMain_widget .course_name{font-size:16px;line-height:20px;font-family:Faustina;-webkit-line-clamp:2;overflow:hidden;height:40px;display:-webkit-box;-webkit-box-orient:vertical;font-weight:600;color:#000;} .liveEventMain_widget .details .author_name{font-size:13px;line-height:16px;color:#333;font-weight:400;margin-top:4px;-webkit-line-clamp:2;overflow:hidden;height:32px;display:-webkit-box;-webkit-box-orient:vertical;} .liveEventMain_widget .view{border: 1.5px solid #D51131; display: block; padding: 8px 0; text-align: center; border-radius: 4px; font-size: 14px; line-height: 16px; color: #D51131; margin-top: 12px; width: 100%; font-family: Montserrat; font-weight: 600; cursor: pointer;} .liveEventMain_widget .view span{display: inline-block; width: 6px; height: 6px; border-top: 1.5px solid #ed193b; border-left: 1.5px solid #ed193b; transform: rotate(90deg); position: relative; left: 5px; top: -2px;} .liveEventMain_widget .view span::after{content: ''; display: inline-block; width: 11px; border-top: 1.5px solid #ed193b; transform: rotate(45deg); position: absolute; top: 3px; left: -2px;} .liveEventMain_widget .arrow_btn{width: 26px; height: 25px; position: absolute; z-index: 11; background-size: 312px; cursor: pointer;} .liveEventMain_widget .nextprev-btn{display:inline-block;width: 100%; position: absolute; top: 59%;} .liveEventMain_widget .prev-btn{background-position: -212px -2px;left: -12px;} .liveEventMain_widget .next-btn{background-position: -241px -2px; right: -3px;left:unset;} .liveEventMain_widget .arrow_btn.disable{opacity:0.5;} .liveEventMain_widget .ts-dots{display:inline-block;position:absolute;top:34px;right:10px;} .liveEventMain_widget .ts-dots ul{display:inline-block;} .liveEventMain_widget .ts-dots li{width:7px;height:7px;border-radius:50%;background-color:#cdcdcd;margin:0 2px;display:inline-block;} .liveEventMain_widget .ts-dots li span{display:none;} .liveEventMain_widget .ts-dots li.active{background-color:#ed193b;} .liveEventMain_widget .topContain { display: flex; align-items: center; gap: 6px; } .liveEventMain_widget .topContain .imgBox { max-width: 40px; } .liveEventMain_widget .topContain .logoTitle { font-family: "Montserrat", "Verdana"; font-weight: 700; font-size: 20px; line-height: 100%; } .liveEventMain_widget .topContain .logoSubTitle{ position: relative; font-size: 18px; font-weight: 500; line-height: 1.2; color: #747474; margin-left: 24px; } .liveEventMain_widget .topContain .logoSubTitle:before{ content:''; position: absolute; left: -13px; top: 0; width: 1px; height: 100%; background-color: #838383; } .liveEventMain_widget .liveEvent_slider .liveEventCardContainer{ } .liveEventMain_widget .liveEvent_slider .liveEventCardContainer .liveEventCard{ display: flex; } .liveEventMain_widget .liveEvent_slider .liveEventCardContainer .liveEventCoverImg{ }
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Under the old tax regime: For ordinary individual taxpayers, the basic exemption limit, up to which he is not required to pay any tax, is presently fixed at Rs 2.5 lakh. However, for retired employees who are also Senior Citizens between 60 and 80 years of age, the basic exemption limit is fixed at a higher figure of Rs 3 lakh. For super senior citizens who are 80 years and above of age, the basic exemption limit is set at Rs 5 lakh.Under the new tax regime: For ordinary individual taxpayers, the basic exemption limit, up to which he is not required to pay any tax, is presently fixed at Rs 3 lakh for AY 2024-25 and AY 2025-26. There are no other concessions for retired people based on any age criterion.“The pension received by you from your employer, in any manner, is taxable under the Income head ‘Salaries’ beyond the exemption limit. However, annuity pension plans subscribed independently by the taxpayer, which make payments in the manner of periodic/monthly ‘pension’, are taxable, which make payments in the manner of periodic/monthly ‘pension’, are taxable under Income from Other sources, and are not equivalent to pension received from previous employer,” said the Income Tax Department in the brochure.
Q2. Will retired employees get the benefit of standard deduction?
Old tax regime: From AY 2020-21, a retired employee above 60 years of age who is in receipt of pension income from his/her former employer can claim a deduction of up to Rs 50,000 against such salary income.New tax regime: From AY 2024-25, standard deduction was also introduced under the new tax regime from AY 2024-25 for Rs 50,000. Such standard deduction has been enhanced to Rs 75,000 from AY 2025-26 onwards.Q3. Are retired employees exempt from payment of advance tax?
Every person whose estimated tax liability for the year is Rs 10,000 or more, is liable to pay advance tax. However, a retired employee above 60 years of age, resident in India, need not pay any advance tax, provided he/she does not have any income under the head “Profits and Gains of Business or ProfessionQ4. What are the tax rates applicable to me for AY 2024-25? Is there a change in tax-slab from AY 2025-26?
In respect of AY 2024-25 and AY 2025-26, you can opt for either old or new tax regime as under:Old Tax Regime- Income tax rate slabs for senior citizens from 60 to 80 years of age:
Income Slab
Rate of tax
Up to Rs 3 lakh
Nil
Rs 3 lakh to Rs 5 lakh
5% (if taxable income is up to Rs 5 lakh, the tax liability is Nil on account of Section 87A rebate)
Rs 5 lakh to Rs 10 lakh
Rs 10,000+20% of amount above Rs 5 lakh
Above Rs 10 lakh
Rs 1,10,000+30% of amount above Rs 10 lakh
Surcharge (subject to Marginal Relief)
If taxable income is more than 50 lakh (then percentage vary from 10% to 37%)
Health & education cess
4% of (Income tax+surcharge)
Note: Rebate under Section 87A- A residential individual whose total income is not more than Rs 5 lakh is eligible for a rebate of 100% of income tax or Rs 12,500, whichever is less.
Income tax slabs for super senior citizens (80 years and above in age) for old tax regime
Income SlabRate of tax
Up to Rs 5 lakh
Nil
Rs 5 lakh to Rs 10 lakh
20% above Rs 5 lakh
Above Rs 10 lakh
Rs 1 lakh+30% above Rs 10 lakh
Surcharge (subject to marginal relief)
If taxable income is more than Rs 50 lakh then percentage may vary from 10% to 37%.
Health & Education cess
4% of (Income tax+Surcharge)
New Tax Regime: Rebate under Section 87A has also been introduced from AY 2024-25 onwards under the new tax regime.
From AY 2025-26, the common slab for new tax regime as follows:
Income slab
Rate of tax
Up to Rs 3 lakh
Nil
Rs 3 lakh to Rs 7 lakh
5%
Rs 7 lakh to Rs 10 lakh
Rs 20,000+10% of amount above Rs 7 lakh
Rs 10 lakh to Rs 12 lakh
Rs 50,000+15% of amount above Rs 10 lakh
Rs 12 lakh to Rs 15 lakh
Rs 80,000+20% of amount above Rs 12 lakh
Above Rs 15 lakh
Rs 1,40,00+30% above Rs 12 lakh
Surcharge (subject to marginal relief)
If taxable income is more than Rs 50 lakh then percentage may vary from 10% to 37%.
Health & education cess
4% of (Income tax+surcharge)
Note: Rebate under Section 87A- A resident individual whose total income is not more than Rs 7 lakh is eligible for a rebate of 100% of income tax or Rs 25,000, whichever is less is applicable from AY 2024-25 onwards i.e. also for AY 2025-26.
Q5. Is the gratuity received by me on retirement exempt from tax?
Yes. The gratuity received on retirement is exempt under the following conditions:Any death cum retirement gratuity received under the revised Pension Rules of the Central government or central civil service pension rules, 1972, is fully exempt.Any gratuity received under the Payment of Gratuity Act, 1972 to the extent that does not exceed an amount calculated under Section 4(2) and 3(3) of the Payment of Gratuity Act.Any other category of gratuity received by an employee on the retirement or on termination of his employment or received by his widow, children or dependents on his death to the extent provided therein.
Q6. Is the amount received by me on commutation of pension exempt from tax?
Answer: Yes. The amount received on commutation of pension is exempt under following conditions:1. Any payment in communication of pension received under the Civil Pension (commutation) Rules of Central government or under any similar scheme.
2. Any payment in commutation of pension received under any scheme of any other employer to the extent it does not exceed-
For employees who also receive gratuity, 1/3rd of the commuted value of pension.For employees who do not receive gratuity, 1/2nd of commuted value of pension.Any payment in commutation of pension received from a fund under clause 23AAB i.e. fund set up by LIC on or after August 1, 1966.
Q7. How is family pension taxed under Income Tax Act, 1961?
Answer: Family Pension is taxed under the head “Income from other sources.”Family pension paid as regular monthly income (un commuted pension) by the employer to a family member of an employee in the event of his/her death. Family pension is taxable after allowing a deduction of 33.33% or Rs 15,000 whichever is less in the income tax return of the family member receiving the pension. However, exemption is available for pension from UNO and for kin of Armed Forces, including paramilitary, in the event of death in the course of operational duties.
In case of taxpayers opting for new tax regime, the deduction limit has been increased to Rs 25,000 instead of Rs 15,000 from AY 2025-26 onwards.
Q8. Is the amount received under Leave Encashment exempt from tax?
Answer: Yes. The amount received on Leave Encashment is exempt under the following conditions:Any payment received by an employee of the Central government or a state government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement (whether) on superannuation or otherwise.Any such payment (as given in the para above) received by an employee other than employee of central or state government, for example employee of Autonomous bodies/societies, trusts, etc in respect of so much of period of encashed leave as does not exceed 10 months calculated on the basis of the average salary drawn by the employee during the period of 10 months immediately preceding his retirement and subject to other limits laid down in the Act for quantum of earned leave and in respect of receipts from different employers with effect from AY 2024-25, this limit is Rs 25 lakh.
Q9. Is the amount received from a superannuation fund exempt from tax?
Answer: Yes. The amount received from an approved Superannuation Fund is exempt from tax subject to certain conditions.Q10. What is the deduction limit for medical insurance premium?
Answer: From AY 2020-21, the maximum limit for deduction under Section 80D in respect of payment made for health insurance premium in respect of a retired employee above 60 years of age has been allowed at Rs 50,000. Deduction up to Rs 50,000 is also allowed for medical expenses incurred on the health of a senior citizen provided no amount is paid for health insurance of such person. For claiming this deduction, it is mandatory that the health insurance premium/ medical expenses are paid by any mode other than cash. This deduction is claimable under Section 80D and is available only for old tax regime.Q11. Is the amount received from a provident fund exempt from tax?
Answer: Yes till AY 2021-22, the amount received from a provident fund is exempt from tax (when the Provident Funds Act, 1925 applies or payment is from any other provident fund set up by the Central Government and notified by it on this behalf in official gazette). Also the accumulated balance due and becoming payable to an employee participating in a recognized provident fund to the extent provided in rule 8 of Part A of 4th schedule.From AY 2022-23 onwards, there are certain changes. In cases of employment where your employee contribution is below Rs 2.5 lakh and your employer similarly contributes; or, in cases of employment where your employee contribution is below Rs 5 lakh while the employer does not contribute, the entire amount is exempt. Interest on employee contribution and employer contribution above these limits has become taxable.
Q12. What is the deduction limit in respect of medical treatment?
In case you have paid any amount during the financial year 2018-19 (relevant to AY 2019-20) or after that period for medical treatment of specified disease or ailment; and since you are a senior citizen, you can claim as deduction an amount of Rs 1 lakh from your income. The amount that a taxpayer is eligible to claim is the difference between the actual expenditure and insurance amount received or reimbursed, if any. This deduction is claimable under Section 80DDB and is available only for the old tax regime.Q13. What is the tax deduction limit for interest earned from the bank and post office for retired persons?
Answer: Individual taxpayers in old tax regime, other than senior citizens are allowed maximum deduction of Rs 10,000 under Section 80TTA in respect of interest income from savings accounts in the bank, and not from time deposits/FDs, etc.However, from AY 2019-20 onwards, a retired employee above 60 years of age can claim deduction up to Rs 50,000 under Section 80TTB in respect of interest income earned on not only savings bank accounts but also on interest income earned on any bank deposits or any deposit with post office or co-operative banks. Further, if such interest income earned by him during the year is less than Rs 50,000, the payer bank/post office will not deduct any tax from such interest income. However, if the deposit is held for/by/on behalf of any firm/AOP/BOI, the member/partner cannot avail this benefit, even if senior citizen.
Q14. What is the income tax provision on transfer of capital assets under a reverse mortgage scheme?
Answer: The transfer of a residential house property by way of a reverse mortgage as per the Reverse Mortgage Scheme made and notified by the Central Government for senior citizens, is not liable to be taxed as Capital gain, even the loan amount received is not taxable under any other head of income.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
