Losing a loved one is never easy, but life brings responsibilities that must go on. When a family member receives a pension after the passing of a loved one, it becomes a financial lifeline during difficult times. However, many people are unaware that family pension income is also subject to tax under certain rules.
Understanding how this tax works can help you manage unexpected expenses and make more conscious financial decisions. Today, let us guide you through everything you need to know about income tax on family pensions, ensuring your future planning remains strong.
Key Takeaways
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A family pension is a regular monthly payment provided to the family members of a deceased government or private employee. It acts as a form of income replacement when the pensioner is no longer around to support the household. The spouse, children, or dependent parents of the pensioner are eligible to receive this pension.
This amount is paid to help cover ongoing living expenses such as food, utilities, education, or medical bills. It is a safety net designed to ensure that the dependents are not financially stranded.
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Yes, family pensions are taxable in India. However, the rules for these are different from those for pensions given to retired employees. It falls under the head "Income from Other Sources" in the Income Tax Act and not under "Salaries."
This is a crucial distinction because the way it is taxed is different. The entire amount of a regular pension is added to the income and taxed accordingly. Conversely, the calculation of family pension income tax comes with specific deductions that reduce the tax burden.
According to Section 57(iia) of the Income Tax Act, a standard deduction is available on family pensions. The deduction is either one-third of the family pension received or ₹ 15,000, whichever is lower. This deduction helps reduce the taxable amount, providing some relief to the family.
Let’s understand this with an example:
| Annual Family Pension | Deduction Allowed | Taxable Pension Income |
|---|---|---|
₹ 60,000 | ₹ 15,000 | ₹ 45,000 |
₹ 30,000 | ₹ 10,000 (1/3rd) | ₹ 20,000 |
The recipient of the family pension is liable to pay tax. This is usually the spouse, but in some cases, it could be a dependent child or parent. The income must be included in the recipient’s annual income, and then it gets taxed based on the applicable income tax slab. It’s essential to note that even if the total amount is relatively low, it must still be reported in your annual income tax return (ITR).
In cases where the family pension is paid to a minor or a person with a disability, the income is either clubbed with the guardian's income or declared separately. For individuals with disabilities, additional deductions may be available under Section 80U of the Income Tax Act, depending on the severity of the disability.
Clubbing rules apply if the minor's income exceeds a certain limit. However, tax planning in such situations should ideally be done with the help of a tax consultant or financial advisor.
Individuals with disabilities and severe disabilities can claim up to ₹75,000 and ₹1,25,000 as tax deductions, respectively.
Source: tax2win
Understanding these differences is essential, especially if your family is also considering pension plans as part of their long-term strategy. Here is a quick comparison to clarify how both types of pensions are taxed:
| Feature | Family Pension | Regular Pension |
|---|---|---|
Tax Head | Income from Other Sources | Income from Salary |
Standard Deduction | ₹ 15,000 or 1/3rd (whichever is lower) | ₹ 50,000 |
Recipient | Dependent family member | Retired employee |
Tax Planning Options | Limited | Broader (including salary benefits) |
If the family pension is divided among more than one eligible member (for instance, after the death of a spouse), each individual is taxed separately based on the share they receive. Each of them can claim the standard deduction under Section 57(iia) individually. This helps ensure that the tax burden is fairly distributed and not calculated cumulatively.
Family pension income must be declared under the appropriate section in the ITR to avoid legal complications. Many recipients forget or skip this, thinking small amounts are exempt. However, failure to report may invite notices from the Income Tax Department.
Also, if you're receiving both salary and family pension, ensure that both are listed under their respective headings. Transparency ensures peace of mind.
While a family pension provides essential support, it may not always be sufficient to meet all future needs, particularly in light of inflation and rising medical costs. This is where private pension plans come into the picture.
Pension plans offered by insurance providers like Canara HSBC Life Insurance help you create a larger, more stable retirement fund. Some key benefits include:
Apart from family pension, if you have invested in eligible pension plans, you may be entitled to tax benefits under Section 80CCC and 10(10A) of the Income Tax Act.
Therefore, while family pension income tax is unavoidable in most cases, strategic investment in pension products can offer added tax relief and enhance cash flow in retirement.
Simple awareness of certain issues can prevent unnecessary stress and ensure smoother financial transitions for the family.
A well-thought-out financial plan takes both taxable and non-taxable income into account. If your family relies heavily on the pension, knowing how to manage the tax on it can make a real difference.
You can consider:
Family pension provides more than just financial aid. It offers stability and reassurance when a family needs it the most. But like any income, it comes with tax obligations. Understanding how family pension income tax works helps you stay compliant and makes financial management even more effective.
Moreover, adding a strong layer of private pension plans can bridge the gap between basic government benefits and your family's actual needs. With the right balance of knowledge and planning, you can turn what seems like a complex tax topic into a stepping stone for future security.
Whether you're receiving a family pension now or planning ahead, staying informed is your best strategy. And if you need personalised guidance, Canara HSBC Life Insurance is here to help you secure every tomorrow, starting today.
As per Section 57(iia), a deduction of one-third of the pension or ₹15,000 (whichever is lower) is allowed. This deduction helps reduce the final taxable amount for recipients of family pensions.
No. Regular pension is taxed as “Income from Salary,” while family pension is taxed as “Income from Other Sources.” Their deductions and treatment under income tax rules also differ.
Yes, but the pension is usually received through a guardian. The income may be clubbed with the guardian’s taxable income and taxed accordingly under applicable clubbing provisions.
In most cases, family pension is not subject to TDS (Tax Deducted at Source). However, it must still be declared and taxed when filing the Income Tax Return.
No, pension plans are separate investments. However, income from annuity-based pension plans will also be taxable and must be declared in the ITR accordingly.
A family pension is intended for individuals who were dependents of the deceased. HUFs are not eligible to receive a family pension, as it is not considered a transferable asset.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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