Is Income Tax payable on Family Pension received by a widow

[Anonymous]

I am a widow and get family pension of about Rs. 50,000 after death of my husband who retired from Central government (department of post). Do I have to pay income tax on this amount? Is it not exempt from tax?

[Pulkit Srivastava]

The said pension income shall fall under the category “income from other sources” and hence taxable as per Section 57 of the Income Tax Act, 1961.

The said provision is reproduced here-in-below:

Section 57: Deductions- The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely:

(i) in the case of dividends, [other than dividends referred to in section 115-O] [or interest on securities], any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend [or interest] on behalf of the assessee ;

[(ia) in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head “Income from other sources”, deductions, so far as may be, in accordance with the provisions of clause (va) of sub-section (1) of section 36 ;]

(ii) in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and [sub-sections (1) [***] and (2)] of section 32 and subject to the provisions of [section 38] ;

[(iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or [fifteen] thousand rupees, whichever is less.

Explanation.- For the purposes of this clause, “family pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death ;]

(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income;

[(iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section.

Although, you can claim a deduction of one-third per cent of such pension income or Rs.15,000, whichever is lower.

[Dr. Ashok Dhamija]

Let me first point out that there is difference between “pension” and “family pension” for the purposes of Income Tax Act, 1961. The income tax treatment for “pension” and “family pension” is different.

“Pension” is generally a periodical allowance or stipend granted on account of past service. Pension is a compensation for past service. It owes its origin to a past employer-employee or master-servant relationship. It is paid on the basis of earlier relationship of an agreement of service as opposed to an agreement for service. This relationship ends only on the death of the employee.

On the other hand, “family pension” is defined in Section 57 of the Income Tax Act as a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of the employee’s death.

Thus, “pension” and “family pension” are different for the purposes of Income Tax Act. While “pension” is paid during the lifetime of the employee, “family pension” is paid after death of the employee to surviving family members.

It is pertinent to point out that “pension” received from a former employer is taxable under the head “salary” since Section 17 of Income Tax Act specifically lays down in clause (ii) of sub-section (1) that “any annuity or pension” is included in “salary”. Therefore, “pension” is taxed in the same way as “salary” is taxed.

On the other hand, in case of “family pension”, since there is no employer-employee relationship between the payer and the payee, it is not included in the head “salary”. It is noteworthy that Section 56(1) of the Income Tax Act provides that “Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income tax under the head “Income from other sources”, if it is not chargeable to income tax under any of the heads specified in Section 14, Items A to E”. Now, since “family pension” is not included in any of these heads specified in Section 14, Items A to E, therefore, “family pension” is taxed under Section 56 as “Income from Other Sources”.

Therefore, “family pension” received by you is taxable under the head “Income from Other Sources”. But, it is pertinent to mention that in view of the provisions of Section 57(iia) of the Income Tax Act, in respect of income due to “family pension”, a deduction of a sum equal to thirty-three and one-third per cent of such income (i.e., one-third of such income) or Rs. 15000, whichever is less, is allowed from such income.

     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

[UMESH SINGH]

I AM A WIDOWER GET AN EMPLOYMENT ON COMPASSIONATE GROUND AND DRAW FAMILY PENSION AND SALARY. MY QUESTION IS ” IS INCOME TAX PAYABLE ON ADDITION OF SALARY AND FAMILY PENSION BOTH OR INCOME TAX CALCULATION WILL BE MADE SEPARATELY’? HOW TO FILLED ITR I?

[Psvsn Murthy]

Ashok Dhamija sir

well explained sir

[Author]

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