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Pension Tax Deductions


Pension Tax Deductions

A pension is a form of payment made to taxpayers after the cessation of their salaried endeavours. The receipt of pension is taxable under the head “Salaries.” However, the provisions of income-tax provide sufficient scope for tax planning. In this article, we look at the various pension tax deductions available for taxpayers filing their income tax returns.

Types of Pension

Before heading on with the methods of tax reduction, we proceed to understand the types of pension disbursement under the Income Tax Act. Pension is classified into the following types:

  1. Commuted Pension – Under this mechanism, the taxpayer is provided with the entire pension amount at one disbursement. Commuted pension is exempted for a government employee, and partially exempt for a non-government employee.
  2. Uncommuted Pension – This category of pension is aimed at remitting the pension amount to the taxpayer on a periodical basis. It is taxable under the head “Salary.”

Standard Deduction for Pension Income

Standard Deduction was introduced under the Finance Act, 2018. The deduction facilitates the pensioner to claim a sum of Rs. 40,000 every year as a deduction. The framing of the new deduction has removed the previously existent deductions of medical reimbursement and transport allowance, and thereby accommodates the taxpayers who were previously not eligible for these allowances.

Section 80C Deduction

Section 80C provides the pensioners with a deduction of Rs. 1.5 lakh per year on specific investments and expenses. Some of the investments that qualify for deduction under this section are life insurance policies, superannuation/provident fund, tuition fees remitted to educate not more than two children, payments deposited towards construction or procurement of a house property, and other similar items.

Section 80TTB Deduction

The Finance Act of 2018 has brought forth a new section known as Section 80TTB, which provides the pensioner with a deduction of Rs. 50,000 per year for senior citizens who have earned their interest from a bank, post office and co-operative society (engaged in banking pursuits).

Section 80DDB Deduction

Deduction under the provisions of Section 80DDB is granted to resident individuals and HUF’s, whose dependents are suffering from specified diseases. Individuals are entitled to claim a tax deduction for the expenses incurred for treating their ailments or that of a dependent, and HUF’s can claim the same for expenses incurred for any of the members of the HUF. The deduction amount under normal circumstances would be Rs. 40,000 or the actual amount remitted, whichever is less. In accordance with the provisions of this section, senior and super-senior citizens are granted with Rs. 60,000 and Rs. 80,000 (or the bill amount which is comparatively less), respectively.

Section 80D Deduction

Akin to the above provision, individuals and HUFs are eligible to avail the benefits of Section 80D. A sum of Rs. 25,000 can be claimed as deduction for availing insurance for self, spouse, dependent children and parents (who may not be dependent on the taxpayer). Moreover, parents of the concerned taxpayer, whose age is less than 60, are entitled to deduction of up to Rs. 25,000; whereas parents who are aged above 60 may claim a deduction of Rs. 50,000. A cumulative additional deduction of Rs. 5000 is granted to the individuals for the expenses incurred for cumulative preventive health check-up. Further, this section facilitates the following kinds of deductions:

  • Deduction on health insurance premium availed for the taxpayer and his/her family members.
  • Deduction on health insurance premium availed for the taxpayers’ parents.
  • Deduction on expenses incurred for preventive health checkup for self.
  • Deduction on medical expenses incurred for super senior citizens.