I retired from a public sector company. After I retired, my employer deposited money with LIC (Life Insurance Corporation) for an annuity under the pension plan. LIC pays me ??9 299 / -pm as a pension for this annuity. I want to know under which head of income, the pension received from LIC, should be proposed for tax? If it is to be taxed as wages, am I entitled to claim a standard deduction of 50,000 / – against this? My wife also deposited money under Pradhan Mantri Vay Vandna Yojna (PMVVY) of Life Insurance Corporation of India. Please confirm if it can also claim the standard deduction of ??50,000 / -.
An employee has the right to claim a standard deduction, up to a maximum amount of Rs. 50,000 / – during a financial year, on any taxable income under the heading “Wages”. The standard deduction is available on the salary received, whether it is arrears or anticipated or for the current period. In addition to the salary received from the current and past employer, even the pension received from a former employer also becomes taxable as wages. Thus, a retiree has the right to claim a standard deduction from the pension income of former employers.
Because the pension which accrues to a person by reason of his employment becomes taxable under the heading “Salaries” and gives the right to the standard deduction. This can be a former employer’s pension or a pension from the Employee Welfare Office (EPFO). as well as an annuity from an insurance company, as an annuity purchased by the employer for retirement.Please note that any periodic payment received as a pension, on an annuity purchased by you directly from a insurance company becomes taxable under the heading “Income from Other sources” and is therefore not eligible for the standard deduction. The annuity earned by your wife is taxable under the heading “Income from other sources”, so that your wife is not entitled to the standard deduction.
Balwant Jain is a tax and investment expert and can be contacted at [email protected] and @jainbalwant on Twitter
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