Uncommuted pension i.e pension received in regular instalments is taxable for all employees.
Commuted means to pay in one time rather to pay in instalments.
Commuted pension is exempt from tax as per the following provisions:
Employees of Central Government, State Government, Local authority, statutory corporation
Commuted pension is fully exempt in hands of such employees.
Any other employee:
For any other employee the amount of exemption will be as follows.
Employee also receives gratuity – 1/3 of Commuted value of pension
Employee not receives gratuity – ½ of Commuted value of pension
If pension is partly commuted and partly uncommuted then each portion’s exemption is calculated accordingly.
Commuted value of pension = Pension received / % of pension commuted
Commuted pension received from pension fund established by LIC or any other approved insurer under section 10(23AAB ) is exempt from tax for all employees.
Pension is taxable under the head Income from Salary. Family pension received by legal heirs is not income from salaries, it shall be taxed as “income from other sources”