Pension ensures regular income for retirees, sustaining their lifestyle and meeting essential expenses even without active employment.
What is Annuity?
An annuity is a lump sum payment made regularly after retirement or when a pension plan matures.
Types of Pension Plans
Immediate Annuity Plan: The pension begins the following month.Deferred Pension Plan: The investor invests for a predetermined time before receiving a pension.
1.2.
Taxability
Pension income is taxable under the Income Tax Act 1961. For employees, it falls under 'Income from Salary,' and for the death benefit, it's 'Income from Other Sources'.
Taxation for Senior Citizens
Senior citizens' pension income, categorised under 'Income from Other Sources' or 'Income from Salary,' is taxed as per their tax bracket and chosen ITR filing option.
Section 194P of IT Act, 1961
Senior citizens aged 75 and above are exempted from the income tax filing if their sole income sources are pension and bank interest.
Family Pension Taxation
Upon the pensioner's demise, their spouse can receive the pension, taxable under 'Income from Other Sources.'
Deduction Allowed for Family Pension
A deduction of one-third uncommuted pension (or Rs. 15,000, whichever is lower) is permitted.
The Final Word
The primary goal of a pension is to give you a steady income on retirement. Have a detailed analysis before choosing a pension scheme.