Pension Income Tax in India — Is Pension Taxable?

Updated: 3 June 2026 | Income-tax Act | FY 2025-26 / AY 2026-27

Yes, pension is taxable in India — but the extent depends on the type. Government employer pension is fully taxable under the head "Salaries". Commuted pension (lump sum): government employees are fully exempt; private employees can exempt 1/3rd (if gratuity received) or 1/2 (if no gratuity) of the commuted amount. Family pension (received by legal heirs) is taxed under "Other Sources" with a standard deduction of ₹15,000 or 33.33%, whichever is lower. NPS annuity pension is fully taxable as income from other sources. Old age pensions from state governments are also taxable.

Fully Exempt

Commuted pension — government employees are fully exempt under Section 10(10A).
Private sector employees get partial exemption (1/3rd or 1/2) based on gratuity entitlement.

Types of Pension and Their Tax Treatment

Indian tax law treats different types of pension differently. Understanding the category your pension falls under is essential before filing your ITR.

Pension Type	Head of Income	Taxability	Exemption / Deduction
Government employer pension (monthly)	Salaries	Fully Taxable	Standard deduction ₹75K (new) / ₹50K (old)
Commuted pension — Government employee	Salaries	Fully Exempt	100% exempt u/s 10(10A)(i)
Commuted pension — Private employee (with gratuity)	Salaries	Partly Taxable	Exempt: 1/3rd of full pension; balance taxable
Commuted pension — Private employee (no gratuity)	Salaries	Partly Taxable	Exempt: 1/2 of full pension; balance taxable
Family pension	Other Sources	Taxable	Lower of ₹15,000 or 33.33% of pension received
NPS annuity (monthly pension)	Other Sources	Fully Taxable	No exemption; TDS may be deducted by insurer
Old age pension (state government)	Other Sources	Fully Taxable	No specific exemption

Commuted Pension — Exemption Calculation

Commutation means converting a portion of your future monthly pension into a one-time lump-sum payment at retirement. The exemption under Section 10(10A) applies as follows:

Government employees (Central/State/Local body/statutory corporation): Entire commuted pension amount is fully exempt — no tax regardless of amount.
Private sector employees + gratuity received: Exempt amount = (1/3) × (Commuted value ÷ % commuted) × 100. In simpler terms: 1/3rd of what the full pension would have been had 100% been commuted.
Private sector employees without gratuity: Exempt = 1/2 of full pension (calculated as above).

Example: If a private employee commutes 40% of pension and receives ₹6,00,000, the full pension (100%) = ₹15,00,000. With gratuity: exempt = 1/3 × ₹15,00,000 = ₹5,00,000. Taxable = ₹6,00,000 − ₹5,00,000 = ₹1,00,000.

Family Pension — Tax Rules

Family pension is the amount paid by an employer to the family/legal heirs of a deceased employee. It is not treated as salary — instead it falls under "Income from Other Sources".

Standard deduction: lower of ₹15,000 or 33.33% of the family pension received.
This deduction is available under both old and new tax regimes.
Multiple family pension receipts (e.g., two deceased employers): deduction applies separately to each.
The net amount after deduction is added to total income and taxed at applicable slab rates.

NPS Pension After Retirement — Tax Implications

The NPS (National Pension System) corpus at age 60 can be handled as follows:

Lump sum withdrawal (up to 60% of corpus): Fully exempt from tax under Section 10(12A).
Annuity purchase (minimum 40% of corpus, mandatory): The monthly pension received from the annuity is fully taxable as income from other sources. No exemption applies to this stream.
TDS may be deducted by the annuity service provider (life insurance company) on the pension paid.
Subscribers should account for NPS pension while computing advance tax to avoid interest under Sections 234B/234C.

Pensioners — Standard Deduction and Senior Citizen Benefits

Pensioners receiving pension from a former employer are treated as salaried for purposes of standard deduction:

New regime: ₹75,000 standard deduction
Old regime: ₹50,000 standard deduction
Senior citizens (60+): Higher basic exemption of ₹3L (old regime); 80TTB deduction up to ₹50,000 on interest income
Super senior citizens (80+): Basic exemption ₹5L under old regime; can file ITR-1 (Sahaj)
No TDS on pension if Form 15H is submitted (for senior citizens with no taxable income)

Frequently Asked Questions

Is government pension taxable in India?

Yes. Pension received from a government employer (central or state government) is fully taxable under the head "Salaries". It is included in gross salary and taxed at applicable slab rates. However, pensioners can claim the standard deduction of ₹50,000 (old regime) or ₹75,000 (new regime) just like salaried employees.

How is commuted pension calculated for exemption?

Commuted pension is a lump-sum withdrawal from the accumulated pension corpus. Government employees: fully exempt under Section 10(10A)(i). Private employees: if gratuity is also received, exemption = 1/3rd of the total pension that would have been received had the full pension been commuted. If no gratuity, exemption = 1/2 of such full pension. The taxable portion is the amount received minus the exempt portion.

How is family pension taxed?

Family pension received by a legal heir (spouse, children) after the death of the employee is taxable under "Income from Other Sources". It is NOT taxed under Salaries. A standard deduction is allowed: ₹15,000 or 33.33% of family pension received, whichever is lower. The balance is added to total income and taxed at applicable slabs.

Is NPS pension after retirement taxable?

The NPS corpus at retirement can be partially withdrawn tax-free (up to 60%). However, the annuity purchased with the remaining 40% generates monthly pension income that is fully taxable as income from other sources in the year received. There is no exemption on the annuity income from NPS. TDS may be deducted by the annuity provider.

What is the standard deduction for pensioners in 2025-26?

Pensioners (receiving pension from a former employer) are treated as salaried individuals and can claim standard deduction. For Tax Year 2026-27: ₹75,000 under the new regime; ₹50,000 under the old regime. Family pension recipients get a different deduction: lower of ₹15,000 or 33.33% of family pension — this applies under both regimes.

Income Tax for Salaried Senior Citizen Tax Guide New Tax Regime 2025-26 File Income Tax Return NPS Calculator

◆ Available in 71 Cities

Pension Income Tax Near You

Expert CA/CS assistance for pension income tax across India. Click your city for local details.

→ New Delhi → Mumbai → Bengaluru (Bangalore) → Hyderabad → Chennai → Kolkata → Pune → Ahmedabad → Noida (UP) → Gurgaon (Gurugram) → Jaipur → Lucknow → Chandigarh → Surat → Kochi (Cochin) → Faridabad → Ghaziabad → Greater Noida → Panipat → Sonipat → Manesar (IMT) → Dharuhera → Mathura → Palwal → Agra → Kosi Kalan → Aligarh → Khair → Jewar (Noida International Airport) → Kanpur → Varanasi (Kashi) → Prayagraj (Allahabad) → Meerut → Bareilly → Moradabad → Gorakhpur → Firozabad → Saharanpur → Muzaffarnagar → Bulandshahr → Hapur → Karnal → Kurukshetra → Ambala → Hisar → Rohtak → Yamunanagar → Rewari → Bhiwani → Jodhpur → Udaipur → Kota → Ajmer → Bikaner → Ludhiana → Amritsar → Jalandhar → Patiala → Mohali (SAS Nagar) → Bathinda → Dehradun → Haridwar → Rudrapur → Shimla → Solan (Baddi-Barotiwala-Nalagarh) → Bhopal → Indore → Gwalior → Jammu → Srinagar → Panchkula

Ask Veda