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Family Pension – Taxation & Deductions

When an employee retires, they get Pension (Salary head). If they die, their family gets Family Pension. Where is it taxed? Not Salary, but Income from Other Sources, with a special deduction!

What is Family Pension?

Regular monthly payment made to the family members/legal heirs of a deceased employee.

  • Received by: Widow/Widower, Children, Nominee.
  • Head of Income: Income from Other Sources (Section 56(1)).

Deduction Available (Section 57(iia))

Standard Deduction is available from family pension.

Amount of Deduction is LOWER of:

  1. 1/3rd of the Family Pension received.
  2. ₹15,000 (Maximum Limit).

(Note: Budget 2023 proposed increasing this limit to ₹25,000 for New Regime, but for B.Com standard syllabus, check if AY 2025-26 updated this. Current Act generally reads ₹15,000). (Update: For FY 2024-25 / AY 2025-26 under New Tax Regime, Section 57(iia) deduction limit is increased to ₹25,000 (proposed). Under Old Regime, it remains ₹15,000. Textbooks usually follow the standard ₹15k unless specified). We will use ₹15,000/1/3rd rule for standard understanding, with a note.

Taxability of Other Pensions

  1. Uncommuted Pension (Monthly) to Employee: Taxed as Salary.
  2. Commuted Pension (Lump sum) to Employee: Exempt/Partly Exempt (Salary).
  3. Family Pension to Heir: Taxed as Other Sources.

Exempt Family Pension (Section 10(18) / 10(19))

Family Pension is Fully Exempt for:

  1. Members of Armed Forces (death in operational duty).
  2. Gallantry Award Winners (Param Vir Chakra, Maha Vir Chakra, Vir Chakra).

Practical Example

Mrs. A receives Family Pension of ₹60,000 p.a. after her husband's death.

Calculation:

  1. Gross Pension: ₹60,000.
  2. Less: Deduction u/s 57:
    • 1/3rd of ₹60,000 = ₹20,000.
    • Max Limit = ₹15,000.
    • Allowed: ₹15,000.
  3. Taxable Income: 60k - 15k = ₹45,000.

Summary

  • Head: Income from Other Sources (not Salary).
  • Deduction: Lower of (1/3rd of Pension OR ₹15,000).
    • Note: Under New Regime, deduction raised to ₹25,000.
  • Exemption: Armed Forces (operational death) & Gallantry Awardees = Fully Exempt.

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