Retired with Rs 55 Lakh Pension & Gratuity: Which ITR Form Should You File for FY 2024–25?

Gratuity is a lump sum monetary benefit paid by an employer to an employee as a token of appreciation for long-term service, usually at the time of retirement, resignation, or death. It is governed by the Payment of Gratuity Act, 1972, and applies to employees who have completed at least five years of continuous service in an eligible organization.

Eligibility Criteria for Gratuity

An employee becomes eligible to receive gratuity if:

• They have completed at least 5 years of continuous service with the same employer.
• Gratuity becomes payable on:

1. Retirement
2. Resignation
3. Death or disability (5-year condition waived)
4. Termination (except for misconduct)
5. Superannuation

Applicability of the Gratuity Act

The Act applies to:

• All factories, mines, oilfields, plantations, ports, and establishments with 10 or more employees.
• Once applicable, the Act continues to apply, even if the number of employees falls below 10.

Maximum Limit on Gratuity (As of FY 2024-25)

Gratuity Calculation Formula

There are two methods for gratuity calculation, depending on whether the employee is covered under the Payment of Gratuity Act, 1972.

For Employees Covered Under the Gratuity Act

Formula:

Gratuity = (15 / 26) × Last Drawn Salary × No. of Completed Years of Service

Where:

• 15/26 = 15 working days in a month (assuming 26 working days)
• Last Drawn Salary = Basic Salary + Dearness Allowance
• Years of Service = Only completed years are considered (e.g., 7 years 6 months = 7 years; 7 years 8 months = 8 years)

Example:

• Last drawn Basic + DA = Rs 40,000/month
• Years of Service = 15 years
• Gratuity = (15 / 26) × 40,000 × 15 = Rs 3,46,154

For Employees Not Covered Under the Act

Formula:

Gratuity = (½ × Monthly Salary × No. of Completed Years of Service)

Where:

• Monthly Salary = Last drawn Basic + DA
• ½ month salary per year of service
• No rounding off of service - exact years only

Example:

• Monthly Salary = Rs 60,000
• Years of Service = 20 years
• Gratuity = ½ × 60,000 × 20 = Rs 6,00,000

Points to Note

Commuted Pension (Lump Sum)

A commuted pension is a one-time lump sum payment received in exchange for a portion of the full monthly pension.

Uncommuted Pension (Monthly Pension)

An uncommuted pension is a regular monthly payment received after retirement, like a salary. It is a recurring source of income.

Tax Treatment of Pension for Uncommuted Pension

Tax Treatment for Commuted Pension

• Fully taxable under the head "Income from Salaries"
• TDS is often deducted by the bank or pension-paying authority

Difference between Commuted and Uncommuted Pension

Breakdown of Retirement Benefits - Rs 55 Lakh Corpus

Assume the Following:

Note: Gratuity and commuted pension are often exempt, but monthly pension and bank interest are taxable.

Which ITR Form To File?

ITR-1 (Sahaj) - Ideal for Most Retired Individuals

ITR-1 if:

• Total income does not exceed Rs 50 lakh
• Assessee has income from:

1. Salary (including pension)
2. One house property
3. Other sources (like interest)

• Assessee does not have:

1. Capital gains
2. Foreign assets/income
3. Business or professional income

Perfect for retirees with monthly pension + interest income (bank FDs, savings).

ITR-2 - If Income > Rs 50 Lakh or Capital Gains

ITR-2 if:

• Assessee's total income exceeds Rs 50 lakh
• Assessee has a capital gains (from shares, mutual funds, property)
• Owns multiple house properties
• Assessee has foreign assets or income

ITR-3 - If Assessee Has Business/Professional Income

ITR-3 if:

• Assessee receives business income
• Assessee is involved in freelance/consultancy work post-retirement
• Assessee opts for Presumptive Taxation (Section 44ADA/44AD)

Example Scenario

Mr. Ramesh, aged 65, retired in FY 2024-25 and received:

• Rs 25 lakh gratuity (Rs 20L exempt)
• Rs 30 lakh commuted pension (fully exempt for govt. employee)
• Rs 3 lakh annual uncommuted pension (taxable)
• Rs 2 lakh FD interest

His total taxable income = Rs 3L (pension) + Rs 2L (interest) = Rs 5L

He claims:

• Rs 1.5L under 80C (PPF, LIC)
• Rs 50,000 under 80TTB (FD interest)

Taxable income after deductions = Rs 3L

Can file ITR-1

No tax liability as senior citizen basic limit is Rs 3L

Documents Required for Retired ITR Filing

• PAN and Aadhaar
• Form 16 (if pension from govt./PSU)
• Form 16A (for interest income)
• Rent Agreement (if HRA claimed before)
• Bank Statements
• TDS details from Form 26AS and Annual Information Statement (AIS)
• Investment proofs (for 80C, 80D, etc.)

Key Takeaways

• Retired with Rs 55L pension & gratuity? Likely, you'll file ITR-1 or ITR-2
• Choose ITR-1 if total income ≤ Rs 50L and only from pension & interest
• Use ITR-2 if your income is higher or you have capital gains/multiple properties

FAQs

Q. Received Rs 55 lakh as pension and gratuity after retirement. Do I need to file ITR?

Yes. If total taxable income exceeds the basic exemption limit, filing ITR is mandatory. Even if most of the amount (like gratuity or commuted pension) is tax-exempt, filing ITR helps in recordkeeping, claiming refunds, and compliance.

Q. Which ITR form should be used for a retired individual?

1. Use ITR-1 (Sahaj) if:

• Total income ≤ Rs 50 lakh
• Income is from a pension, one house property, and interest

2. Use ITR-2 if:

• Income > Rs 50 lakh
• You have capital gains or multiple properties

3. Use ITR-3 only if you have business or professional income

Q. Is gratuity taxable in the ITR?

No, gratuity is tax-free up to Rs 20 lakh under Section 10(10) for private employees. It is fully exempt for government employees. You must still disclose exempt income in the ITR under the "Exempt Income" section.

Q. Is commuted pension taxable?

Commuted pension is:

• Fully exempt for government employees
• Partially exempt for others: Up to 1/3rd or 1/2 of the amount, depending on whether gratuity was also received

Uncommuted (monthly) pension is fully taxable under "Salary".