Income Tax Return: An Overview
 

What is Income Tax Return?

An Income tax return (ITR) is a form used to file information about your income and tax to the Income Tax Department. The tax liability of a taxpayer is calculated based on his or her income. In case the return shows that excess tax has been paid during a year, then the individual will be eligible to receive an income tax refund from the Income Tax Department.

All individuals who have an annual income over Rs. 2,50,000 are liable to pay income tax. However, the case is different for pensioners; they enjoy a certain exemption.

Income Tax for Pensioners

If an individual is more than 60 years of age but is less than 80, the tax slab starts at Rs. 3,00,000, and if he/she is above 80 years, then the tax slab starts after Rs. 5,00,000. If you are in this age bracket and your respective income is lower, you won't need to file your taxes.

Generally, pension holders need to file ITR 1 or Sahaj unless their pension or income is over Rs. 50 lakh.

Pension income should be disclosed under which head of income?

To find an answer to this, we need to divide our discussion into two parts:

a) If the pensioner himself is receiving a pension

b) When family members are receiving the pension amount

In the first instance, income should be disclosed

At par with salary income and shown in form ITR-1

As income received in the hand of the pensioner is mostly routed through the bank and not from the employer, while claiming TDS (if any) TAN of the issuer i.e. bank shall be quoted.   
Confusion arises in the minds of tax filers about what shall be the credentials to enter if income is shown as salary income. The employer details shall be the details of your last employer.   
(The tax implications arising in case of pensioner receiving the amount have been explained below)

In cases where family members receive the pension, after the demise of the pension holder, it shall be shown as Income From Other Sources. The reason being the pension does not accrue because of any service rendered to the employer by the family members.   
Commuted i.e. lump sum pension received by family members is EXEMPT from tax.   
Uncommuted pension i.e. pension received periodically by family members is exempt minimum of   
Rs.15,000/- or 1/3rd of pension amount

What are the tax implications if pension is received by the pensioner himself?

For understanding the tax implications here, first we need to understand that pension can be categorised into two parts:

Commuted pension

Commuted pension means the amount of pension received in a lump sum. It can be the complete pension or a specified part of the total pension.   
Example:   
If Sharma Ji is eligible for a total pension of say Rs.10 lakhs, he can opt to seek a complete amount of Rs. 10 lakh in lump sum as commuted pension. Otherwise, he can also seek any part of it, say Rs. 01 lakhs or 02 lacs or 05 lakhs in one go and the rest in periodic instalments.

Uncommuted Pension

An uncommuted pension is a pension received periodically, and this period is normally fixed at monthly rests.

“The golden rule of pension says that UNCOMMUTED PENSION is ALWAYS TAXABLE”

Taxability of commuted pension

Commuted pension when received by government employees OR employees retiring from defence services it is FULLY EXEMPT from levy of taxes.

For Non-Government employees (if 100% pension is commuted), the exemption granted is partially dependent upon whether a person also receives gratuity.

In case a person earns both PENSION + GRATUITY -> 1/3rd of the amount received as pension is exempt from levy of taxes

In case a person earns only PENSION -> 1/2 of the amount received a pension is exempt from the levy of taxes