PENSION – Legal Issues and Taxation
Fundamentals facts about pension:-
- Pension is a “Defined Retirement Benefit” plan.
- This is taxed as salary in the hands of the employee.
- For employer, pension is just like other employee benefit plan and any expenses incurred shall be disclosed on face of “Profit and Loss Account” under “Employee Expenses”.
- Any future liability shall be actuarially valued and disclosed on the face of balance sheet as separate line item under appropriate head.
- Pension expenses are deductible on payment basis to the employee u/s 37 of income tax act.
- While calculating TDS for payments made to employee, pension payments are consider on due basis.
Who is eligible for pension / family pension
Person himself, his/her spouse, children below 25 year of age, unmarried daughter.
What is the tax treatment for family pension received by the legal heirs of a deceased employee
It will be taxable under the head ‘income from other source’ .under section 57(iia).
A standard deduction shall be allowed to the legal heir @33.333% of such pension or Rs. 15,000, whichever is less.
Divorced wife loses the status of a legally wedded wife and as such is not entitled to the award of family pension. However, the eligible child/children from a divorced wife shall be entitled to the share of family pension which the mother would have received at the time of death of her husband had she not been divorced.
What are the document to be filled for family pension in case of death?
- Certificate of income, required to be submitted by a claimant member of family (other than spouse) along with application form. (Form 14)
- PPO and death certificate after the death of a pensioner/family pensioner
- Department of Personnel, P.G. & Pensions(DOPPW), Government of India, New Delhi has issued the O.M. No. 1/16/2011-P&PW(E) dated 20.9.2012 regarding- Family pension, this O.M. is being uploaded on the ICAR web-site icar.org.in for information and further guidance.
What are the documents to be filled when the name of the claimant member is not available in the records?
The certificates prescribed at serial number 9(v) of Form 14 may be accepted. In addition to these certificates:-
- PAN Card, Matriculation Certificate, Passport.
- CGHS Card, Driving License
- Voter’s ID card and Aadhar Number may also be accepted.
The Applicant has also to prove that no other surviving member in the family, who may have a prior entitlement for family pension, is eligible. For this purpose the above and/or any other document such as marriage/death/income certificate of the other member, which may be essential in a given situation may be used.
FOR DETAIL OF OTHER FORMS PLEASE REFER WEBSITE www.pensionersportal.gov.in
- Tax is deductible under section 192 of income tax act on payment.
- Family pension received by the dependence of the employee is taxable under the head income from other source.
- TDS is not deductible on family pension as it is not covered under section 192 of the Income tax act
- Exemption under section 10 (18) if any income by way of pension / family pension shall be exempt if such individual has been in the service of central government/ state government and has been awarded Paramvir Chakra or Mahavir Chakra, or Vir Chakra or such other Gallantry awards as may be notified.
Exemption of family pension received by the family members of armed forces (including paramilitary forces) personnel killed in action in certain circumstances 10 (19).
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