Taxability of commutation of pension
This query is : Resolved
18 April 2012
My Client has left the organisation on July 2004 from which the monthly pension of Rs. 4197/- starts till June 2014. And this year on june 2011 he stopped taking the pension and got the amount Rs. 155289/-? He is covered under gratuity act.
What will be the taxability of this amount which i received this year of Rs. 155289/-?????
What will be the taxability of this amount which i received this year of Rs. 155289/-?????
18 April 2012
In the case where Gratuity was received,
2/3rd of 155289 i.e. 103526/ will be taxable as Salary income for the AY 2012-13.
2/3rd of 155289 i.e. 103526/ will be taxable as Salary income for the AY 2012-13.
19 April 2012
Thank You Paras sir, It helped me out.
And
If pension is commuted twice then can we claim exemption u/s 10 10A in second time????
And
If pension is commuted twice then can we claim exemption u/s 10 10A in second time????
19 April 2012
Yes, you can claim.
20 April 2012
Respected CA Paras Bafna sir,
If we can claim then it would be like we are claiming more exemption than 1/3rd of original total pension
If we can claim then it would be like we are claiming more exemption than 1/3rd of original total pension
26 July 2025
Great question about **commutation of pension** and tax treatment! Let me clarify the rules and explain the nuances:
---
### Taxability of Commuted Pension
* **Commutation of pension** means receiving a lump sum amount in lieu of future pension payments.
* Under **Section 10(10A)** of the Income Tax Act, **commuted pension received by a government employee is fully exempt** from tax.
* For **non-government employees**, only a portion of commuted pension is exempt:
* If gratuity is **not received**, the entire commuted pension is taxable.
* If gratuity **is received**, then **1/3rd of the commuted pension is exempt** and the remaining 2/3rd is taxable as salary income.
---
### Your case:
* Your client left in July 2004, receiving pension monthly till June 2011.
* He stopped pension and got Rs. 1,55,289 lump sum.
* He is covered under **Gratuity Act** (so gratuity was received).
Therefore,
* **1/3rd of Rs. 1,55,289 (approx. Rs. 51,763) is exempt**, and
* **2/3rd of Rs. 1,55,289 (approx. Rs. 1,03,526) is taxable as salary income** in the year received.
---
### About multiple commutations:
* The exemption under **Section 10(10A)** applies **only once** based on original pension.
* If commutation is done **twice**, exemption cannot exceed 1/3rd of the original pension.
* So for the **second commutation**, exemption is allowed **only on the balance amount of uncommuted pension**.
* You **cannot claim exemption more than 1/3rd of the original total pension** in total.
---
### Summary:
| Scenario | Tax Treatment |
| ------------------------------- | ------------------------------------------- |
| Govt. employee commutation | Fully exempt |
| Non-govt employee with gratuity | 1/3rd exempt, 2/3rd taxable |
| Non-govt without gratuity | Fully taxable |
| Multiple commutations | Total exemption ≤ 1/3rd of original pension |
---
If you want, I can help prepare the exact tax computation or draft for tax filing explaining this. Would you like that?
---
### Taxability of Commuted Pension
* **Commutation of pension** means receiving a lump sum amount in lieu of future pension payments.
* Under **Section 10(10A)** of the Income Tax Act, **commuted pension received by a government employee is fully exempt** from tax.
* For **non-government employees**, only a portion of commuted pension is exempt:
* If gratuity is **not received**, the entire commuted pension is taxable.
* If gratuity **is received**, then **1/3rd of the commuted pension is exempt** and the remaining 2/3rd is taxable as salary income.
---
### Your case:
* Your client left in July 2004, receiving pension monthly till June 2011.
* He stopped pension and got Rs. 1,55,289 lump sum.
* He is covered under **Gratuity Act** (so gratuity was received).
Therefore,
* **1/3rd of Rs. 1,55,289 (approx. Rs. 51,763) is exempt**, and
* **2/3rd of Rs. 1,55,289 (approx. Rs. 1,03,526) is taxable as salary income** in the year received.
---
### About multiple commutations:
* The exemption under **Section 10(10A)** applies **only once** based on original pension.
* If commutation is done **twice**, exemption cannot exceed 1/3rd of the original pension.
* So for the **second commutation**, exemption is allowed **only on the balance amount of uncommuted pension**.
* You **cannot claim exemption more than 1/3rd of the original total pension** in total.
---
### Summary:
| Scenario | Tax Treatment |
| ------------------------------- | ------------------------------------------- |
| Govt. employee commutation | Fully exempt |
| Non-govt employee with gratuity | 1/3rd exempt, 2/3rd taxable |
| Non-govt without gratuity | Fully taxable |
| Multiple commutations | Total exemption ≤ 1/3rd of original pension |
---
If you want, I can help prepare the exact tax computation or draft for tax filing explaining this. Would you like that?
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