Income Tax on Pension: Are Pensions Taxable? | HDFC Pension

Is Pension Taxable? A Complete Guide

Working people always worry about maintaining their financial independence in their golden years. You might have already purchased a pension plan or registered for the NPS to enjoy a financially secure future. But what happens when you start getting returns from your annuity or retirement policy? Have you ever wondered is pension taxable? Read on to understand your tax liabilities once you retire.


How Do I Receive Pension from NPS?

Most young workers register for the National Pension System (NPS) to secure their future. You put money into your NPS Tier I account every year and get to choose how these funds get invested in the various asset classes to build a significant corpus for the future. When you are 60 and ready to retire, you can withdraw up to 60% of the amount tax-free. You must use the rest of the 40% to purchase an annuity.

Tax payable on Pension

Pension from Annuity

The annuity you purchase with the NPS funds provides you with a pension. You get to decide how often you receive the money. Some may opt for monthly payouts, while others prefer annual payments. Depending on your chosen plan, you may get pension payments for a fixed period or the rest of your life.


Is Pension Taxable?

Yes, the pension you receive from your annuity once you retire becomes your income. So, you must pay taxes based on your income bracket. Once you reach 60, you enjoy higher exemption limits, but you must still pay the required income tax. Any pension you receive gets categorized under Salaries.

Taxable Pension - NPS


How Much Tax Do I Have to Pay?

If you’re nearing retirement, you may worry about how much of your pension is taxable. We can understand your tax liability based on the current tax slabs in old tax regime.

Income Tax for Pensioners Above 60 and Below 80

Income Tax Slab Tax Rates$
< Rs. 3,00,000 NIL
Rs. 3,00,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
> Rs. 10,00,000 30%

You won’t have to pay any tax on the money received from the annuity if your total income, including pension, for the year does not exceed Rs. 3 lakhs. $However, if you are paying tax, you must remember that the government levies a 4% health and education surcharge on the tax amount.

Income Tax for Pensioners Over 80

Income Tax Slab Tax Rates$
< Rs. 5,00,000 NIL
Rs. 5,00,001 to Rs. 10,00,000 20%
> Rs. 10,00,000 30%

Pensioners over 80 do not have to pay income tax if they earn less than Rs. 5 lakhs annually.

Tax Saving, tax Time, taxes


Taxable Pension and Deductions

Although the new tax regime does not allow other kinds of deductions, pensioners can still benefit from the Rs. 50,000 standard deduction on their annual income. Additionally, retirement and other gratuity benefits have been retained in the new regime, ensuring that pensioners can enjoy a secure retirement.

If you’ve been wondering, ‘is pension taxable?’ It’s time to put your mind at ease. Although retirees have to pay income tax, they enjoy higher tax exemptions, enabling them to make the most of their pensions.


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