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Income tax on epf pension

GEORGE JOSEPH ( Practising CA) (100 Points)

28 September 2016

Is the pension receved under Employees Pension scheme 1995 under Employees provident fund and Misc. provisions Act 1952 taxable under Income tax Act?

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17 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 29 September 2016

commuted pension means the lumpsum amount received and uncommuted means which is received in instalments
Following is exempted from Commuted pension:

a) Govt employee - Fully exempted

b) Non governmental employees: 1/3 of the total pension.(If he also receives gratuity) or 2/3 of total pension(If he doesnt receive any gratuity)

Uncommuted pension is always taxable.

1 Like

GEORGE JOSEPH ( Practising CA) (100 Points)
Replied 29 September 2016

Thank you sir.Under which head will the uncommuted EPF pension be taxed?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 29 September 2016

for Retiree its SALARY income; but for family member (after demise of the employee), its under 'Income From Other sources'

GEORGE JOSEPH ( Practising CA) (100 Points)
Replied 29 September 2016

thank you sir.I tend to disagree with the head you mentioned i.e salary because the pension is paid by Provident fund dept. There is no employer-employee relationship.I therefore feel that for the retired employee it has to be taxed under "Income from other sources" as is similar to the income of pension from LIC annuity schemes.I would be grateful for your comments.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 29 September 2016

Pension is described in section 60 of the CPC and section 11 of the Pension Act as a periodical allowance or stipend granted on account of past service, particular merits etc.

There are three important features of ‘pension’.

Firstly, pension is a compensation for past service.

Secondly, it owes its origin to a past employeremployee or master-servant relationship.

Thirdly, it is paid on the basis of earlier relationship of an agreement of service as opposed to an agreement for service. This relationship terminates only on the death of the concerned employee.

Pension received from a former employer is taxable as ‘Salary’. Hence, the various deductions available on salary income, including relief u/s 89(1) for the arrears of pension received would be granted to pensioners who received their pension from, a nationalised bank and in other cases their present Drawing & Disbursing Officers. Similarly, deductions from the amount of pension of standard deduction and adjustment of tax rebate u/s 88 and 88B shall be done by the concerned bank, at the time of deduction of tax at source from the pension, on furnishing of relevant details by the pensioner. Instructions in above regard were issued by R.B.I.’s Pension Circular (Central Service No. 7/C D.R./ 1992(Ref. No. DGBA:GA(NBS) No. 60/GA64-(II CVL-91-92 dated 27.4.92).

2 Like

jagdish (Article Assistant) (67 Points)
Replied 30 May 2018

Hello Sir,

May I know what is tax treatment of pension income from PPF.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 30 May 2018

Completely exempted......

jagdish (Article Assistant) (67 Points)
Replied 30 May 2018

Thank your sir, Appreciate your help.

Satish Halemani (Server Admin) (28 Points)
Replied 23 July 2018

I have received both gratuity and lumpsum pension amount after exiting my previous company. The form16 given by my company does not include the gratuity/pension amount. I need to show the commuted value (66.66%) and the tax exempt value(33.33%) of the pension amount in ITR2 form. Where do I show them in my ITR2 form?

Satish Halemani (Server Admin) (28 Points)
Replied 23 July 2018

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 23 July 2018

Add taxable part in your salary amount; while exempted part under exempted income.

Satish Halemani (Server Admin) (28 Points)
Replied 23 July 2018

Thanks Dhirajlal.

I am actually confused with adding taxable pension amount to Salary amount under Schedule S.

Should I add this taxable amount to the existing amount of my previous employer under (Salary (Excluding all exempt/ non-exempt allowances, perquisites & profit in lieu of salary)) OR should I click 'Add Salaries' and make an entry for this pension amount (In this case should who would be the eomployer - Previous company OR SBI who credited the amount OR EPFO). Please advise.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 23 July 2018

It is related to your previous employment, hence SBI doesn't come into picture.

Satish Halemani (Server Admin) (28 Points)
Replied 23 July 2018

Thanks you so much. I will go ahead and add this to my previous employer's salary. I hope I dont have to update the new value for previous employer under TDS sheet as it is anyway not reflecting in Form16.