Your monthly pension is taxable as salary and gets the standard deduction (₹75,000 new / ₹50,000 old). A commuted (lump-sum) pension is fully exempt for government pensioners and partly exempt for others. Family pension (paid to a dependant after the pensioner's death) is other income with its own deduction. Army pension follows the same rules, with a disability-pension exemption.
Pension feels different from a salary, but for tax it is largely treated the same — and that is good news, because it means you get the same standard deduction and the same regime choice a working person does. The nuances that trip people up are three: the lump sum you take by commuting part of your pension is treated separately and is often exempt; the family pension a spouse or dependant receives after the pensioner passes away is taxed under a different head with its own deduction; and a disability pension to armed-forces personnel can be fully exempt. Once you know which bucket your pension falls into, the tax is straightforward.
The regular monthly pension you receive after your own retirement is fully taxable as salary income. Crucially, that means it also qualifies for the standard deduction — ₹75,000 in the new regime and ₹50,000 in the old — so the first slice of your pension is effectively tax-free, and you then pay tax at the normal slabs in whichever regime suits you. Whether the pension comes from a government department, a company, EPS or an annuity, the monthly amount is taxed this way. So a retired person with a modest pension often pays little or no tax once the standard deduction and the rebate are applied.
Many pensioners choose to commute part of their pension — taking a one-time lump sum in exchange for a reduced monthly amount. This lump sum is treated separately and is generously exempt. For a government employee, the commuted pension is fully exempt. For a non-government pensioner, one-third of the full commuted value is exempt if they also receive gratuity, and one-half if they do not. Only the balance, if any, is taxable. The regular (uncommuted) monthly pension that continues remains taxable as salary as above. See commuted pension exemption.
When a pensioner dies and the pension continues to a spouse or dependant, that family pension is not salary — it is taxed under income from other sources. The recipient gets a special deduction of one-third of the pension or ₹15,000, whichever is lower in the old regime, and a flat ₹25,000 deduction in the new regime. This distinction matters because a widow or dependant filing for the first time often assumes the pension is salary; reporting it correctly under other sources, with the right deduction, keeps the return clean.
Pension paid to a retired member of the armed forces or a government department is taxable as salary in the same way as any other pension, with the standard deduction and slab rates applying. There is, however, an important exemption: a disability pension paid to armed-forces personnel invalided out of service is fully exempt from tax. So an ordinary army service pension is taxable, but a disability element is not — a distinction worth confirming for each pensioner's specific entitlement.
Filing is required whenever your total income, including the pension, exceeds the basic exemption limit — just as it is for any other taxpayer. Many pensioners are below the limit once the standard deduction and rebate are applied and needn't file, but it is often still worth filing to claim a refund of any TDS the bank deducted, and to keep an income record for loans or visas. There is also a special relief for very senior pensioners: a resident aged 75 or above whose only income is pension and interest from the same bank can be exempted from filing altogether, because the bank computes and deducts the tax under Section 194P.
A pensioner with only pension and interest income files ITR-1, entering the pension under the salary head. If there are capital gains — say from selling shares or a property — or more than one house, it becomes ITR-2. Family pension goes under income from other sources. Reconcile the pension and any TDS with your Form 26AS and AIS before filing, and remember that senior citizens enjoy higher basic exemptions and a larger interest deduction — see senior-citizen benefits.
The levers are simple but effective. Take the standard deduction (automatic), and if you are a senior, use the ₹50,000 interest deduction under Section 80TTB and the higher basic exemption, which together often make the old regime the cheaper choice for a retiree living on pension and interest. Health-insurance premiums give a larger 80D deduction for seniors, and the disability and serious-illness deductions can apply. If a commuted lump sum is on the table, plan its timing and the gratuity interplay so the exemption is maximised. Comparing both regimes each year is the single most valuable habit.
Take a retired person receiving a monthly pension of ₹40,000, so ₹4,80,000 a year, plus ₹80,000 of bank interest — a total income of ₹5,60,000. In the new regime, the ₹75,000 standard deduction brings the pension component down, and after the rebate the tax works out to nil because the total is comfortably within the ₹12 lakh rebate threshold. In the old regime, a senior citizen would additionally deduct up to ₹50,000 of the interest under Section 80TTB and enjoy a higher basic exemption, again arriving at little or no tax. The point is that a typical pensioner living on pension and interest usually pays very little tax once the standard deduction, senior benefits and rebate are applied — but you should still file to claim back any TDS the bank deducted on the interest or pension.
A few errors recur. The first is not claiming the standard deduction on pension because people assume it only applies to a working salary — it applies to pension too. The second is reporting family pension as salary instead of under other sources, which forfeits the special deduction available on it. The third is a senior citizen not comparing regimes and staying on the new regime when the old regime, with its 80TTB interest deduction and higher exemption, would have been cheaper. The fourth is missing a TDS refund — banks often deduct tax on pension and interest, and only filing a return gets it back. Avoiding these keeps a retiree's tax at the legal minimum with almost no effort.
Yes — the monthly (uncommuted) pension is taxable as salary and gets the standard deduction. A commuted lump sum is fully exempt for government pensioners and partly exempt for others. Family pension is taxed under other sources with its own deduction.
An ordinary army service pension is taxable as salary like any pension. However, a disability pension paid to armed-forces personnel invalided out of service is fully exempt from tax.
Only if your total income including the pension exceeds the basic exemption limit. It is often worth filing anyway to claim a TDS refund. Residents aged 75 or above with only pension and interest from the same bank can be exempt from filing under Section 194P.
Family pension received by a dependant after the pensioner's death is taxed under income from other sources, with a deduction of one-third or ₹15,000 (whichever is lower) in the old regime, or a flat ₹25,000 in the new regime.
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