Example:-X retires from B Ltd. on 31st July, 2014. He gets pension of ₹ 1,000 per month up to 31st December, 2014. W.e.f 1st January, 2015 he gets 60% of pension commuted for ₹ 1,70,000. Does it make any difference if he also receives gratuity of ₹ 3,000 at the time of retirement?

Chapter No. 04 - Salary - Pension - [Sec. 10(10A)]

. In case of a non-government employee while uncommuted pension is fully chargeable to tax, commuted pension is partly chargeable to tax and partly exempt from tax.

Amount of taxable pension will be computed as under:

UNCOMMUTED PENSION

 From 31^st July 2014 to 31^st December 2014 (1,000 x 5)                                            ₹ 5,000

From 1^st January 2015 to 31^st March 2015 (1,000 x .4 x 3)                                        ₹ 1,200

Total uncommuted pension chargeable to tax as salary                                           ₹ 6,200

COMMUTED PENSION

Commuted value of 60%                                                                                            ₹ 1,70,000

Commuted value of full pension (100/60 x 1,70,000)                                                ₹ 2,83,333

If X does not receive gratuity

Amount exempt (1/2 of commuted value of full pension) (1/2 x 2,83,333)              ₹ 1,41,667

Commuted pension chargeable to tax as salary (1,70,000 – 1,41,667)                    ₹ 28,333

 If X receives gratuity

Amount exempt (1/3 of commuted value of full pension) (1/3 x 2,83,333)              ₹ 94,444

Commuted pension chargeable to tax as salary (1,70,000 – 94,444)                       ₹ 75,556

Dated: 10-8-2015