Yes, pension is taxable in India, but how much depends on the type. Monthly pension from your own former employer (government or private) is taxable under the head "Salaries", and pensioners get the same standard deduction as employees — Rs 75,000 (new regime) or Rs 50,000 (old). Commuted (lump-sum) pension is exempt under Section 10(10A) — fully for government staff, part (1/3 or 1/2) for private staff. Family pension to a legal heir is taxed under "Other Sources" with a one-third deduction up to Rs 25,000. NPS annuity pension is fully taxable.
Types of Pension & How Each Is Taxed
Indian tax law treats each kind of pension differently. The head of income, the taxable portion and the exemption all change with the type — get the category right before you file your income-tax return.
| Pension type | Head | Taxable? | Exemption / deduction |
|---|---|---|---|
| Monthly pension — govt or private | Salaries | Taxable | Standard deduction Rs 75,000 (new) / Rs 50,000 (old) |
| Commuted pension — govt employee | Salaries | Exempt | 100% exempt u/s 10(10A)(i) |
| Commuted pension — private (with gratuity) | Salaries | Part | 1/3 of full commuted value exempt |
| Commuted pension — private (no gratuity) | Salaries | Part | 1/2 of full commuted value exempt |
| Family pension (legal heir) | Other Sources | Taxable | 1/3 of pension or Rs 25,000, whichever is lower |
| NPS annuity (monthly) | Other Sources | Taxable | No exemption; annuity provider may deduct TDS |
Uncommuted (monthly) pension is always fully taxable — only the lump-sum commuted portion can be exempt.
Because your own pension is taxed under "Salaries", you can claim the salaried standard deduction — Rs 75,000 under the default new regime or Rs 50,000 under the old regime — even though you have retired. Family pension is different: it is taxed under "Other Sources" with its own deduction.
Commuted Pension — the Exemption
Commutation converts part of your future monthly pension into a one-time lump sum at retirement. That lump sum is exempt under Section 10(10A):
Government employee
- Entire commuted pension is fully exempt
- No tax regardless of the amount
- Covers central, state, local body & statutory corporation staff
- Uncommuted monthly pension still taxable
Private / other employee
- Exempt 1/3 of full commuted value if gratuity is also received
- Exempt 1/2 of full commuted value if no gratuity
- Balance is taxable under "Salaries"
- Applies to non-government pensions
Worked example. A private employee commutes 40% of pension and receives Rs 6,00,000. The value of 100% commutation would be Rs 15,00,000. If gratuity is also received, exempt = 1/3 × Rs 15,00,000 = Rs 5,00,000, so the taxable commuted pension is only Rs 1,00,000.
Govt employee
Private (with gratuity)
Only the commuted (lump-sum) portion can be exempt. The uncommuted monthly pension you keep drawing is fully taxable under "Salaries" every year for both government and private pensioners — the standard deduction is the only relief on it.
Family Pension — Taxed Under Other Sources
Family pension is the amount an employer pays to the family or legal heirs (spouse, children) of a deceased employee. It is not salary — it is taxed under "Income from Other Sources", with a standard deduction under Section 57(iia):
- Deduction = one-third of the family pension or Rs 25,000, whichever is lower (the cap was raised from Rs 15,000 to Rs 25,000, and this deduction is now available in the new regime too).
- The net amount after the deduction is added to total income and taxed at your slab rate.
- Family pension to the family of an armed-forces member who died in operational duty is fully exempt under Section 10(19).
NPS Pension After Retirement
At exit (usually age 60) the NPS corpus splits into a lump sum and a compulsory annuity, taxed very differently:
- Lump-sum withdrawal (up to 60% of corpus): fully exempt under Section 10(12A).
- Annuity (minimum 40% of corpus): the monthly pension from the annuity is fully taxable as income from other sources — there is no exemption on this stream.
- The annuity provider (a life insurer) may deduct TDS; factor NPS pension into advance tax to avoid interest under Sections 234B/234C.
Under the old regime, a resident senior citizen (60+) has a higher basic exemption of Rs 3,00,000 and can claim 80TTB up to Rs 50,000 on interest income; super-senior (80+) exemption is Rs 5,00,000. A senior citizen with no tax due can file Form 15H to stop TDS on pension and interest. Under the new regime the rebate u/s 87A covers taxable income up to Rs 12 lakh.
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- Commuted pension: Section 10(10A), Income-tax Act 1961
- Family pension deduction: Section 57(iia) (raised to Rs 25,000, Finance Act 2023)
- NPS lump-sum exemption: Section 10(12A); standard deduction Rs 75,000/50,000 u/s 16(ia)
Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.