The Income Tax Return (ITR) filing season has commenced, making it essential for pensioners and family pension recipients to understand the distinct tax regulations governing their income. A common mistake among taxpayers is treating pension and family pension as the same category of income, while this misunderstanding often leads to errors in tax calculation, resulting in tax disputes, official notices from the department, and significant delays in receiving tax refunds. To ensure a smooth filing process, it's vital to recognize how the law differentiates these two types of income.
Pension Classified as Income from Salary
Under the Income Tax Act, pension received by an individual after retirement is legally classified as Salary. This classification stems from the fact that the pension is provided by a former employer to an employee, maintaining the employer-employee relationship even after retirement, while consequently, pension income is taxed under the head Income from Salary. Because it's treated as salary, pensioners are eligible for the benefit of a standard deduction. In the old tax regime, a standard deduction of up to 50,000 can be claimed. Under the new tax regime, this limit has been increased to 75,000, provided that the total pension or salary amount isn't less than these specified limits.
Distinct Rules for Family Pension
The tax treatment changes Notably when it comes to family pension. Family pension is the amount received by the spouse or legal heirs of a deceased employee or pensioner, while unlike regular pension, family pension isn't considered salary because there is no direct employer-employee relationship between the recipient and the payer. Instead, it's categorized under Income from Other Sources, while due to this classification, recipients of family pension aren't eligible for the standard deduction available to salaried individuals. However, they can claim a specific deduction under Section 57(iia) of the Income Tax Act. In the old tax regime, the deduction allowed is one-third of the family pension or 15,000, whichever is lower. In the new tax regime, the deduction is one-third of the family pension or 25,000, whichever is lower.
Relief for Senior Citizens from Advance Tax
The Income Tax Act provides specific relief to resident senior citizens regarding the payment of advance tax. Under Section 207(2), resident senior citizens who are 60 years of age or older are exempted from the requirement of paying advance tax, provided they don't have any income chargeable under the head Profits and Gains of Business or Profession. While they're spared from the periodic advance tax installments, they're still required to pay the total tax due at the time of filing their Income Tax Return.
Special Provisions for Citizens Above 75 Years
For senior citizens aged 75 years and above, Section 194P offers a special provision that may exempt them from the requirement of filing an ITR altogether. This exemption is applicable only if the individual's income is limited to pension and interest income earned from the same bank where the pension is credited. To avail of this benefit, the eligible senior citizen must submit Form 12BBA to their respective bank. Experts advise that for the Assessment Year 2026-27, all pensioners should carefully cross-verify their financial details using Form 16, the Annual Information Statement (AIS), and Form 26AS before finalizing their ITR to ensure complete accuracy and avoid future complications.