What is Pension?

Pension is Defines as if an employee works for his employer throughout his employment and after his retirement from his employment, the Employee receives some consideration from his employer. this consideration is known as Pension.

What is Pension fund?

How pension Fund Generates?

pension is not given by the employer from his own pocket this amount of money is deducted by the employer from the salary of the employee. this amount is collected in a separate Trust or bank throughout the employment. 

After the retirement of the employee, there is a huge amount of money is collected by the bank, and every month the employee receives the interest on that money. this amount of money the employee receives every month is called Pension.

this amount of money is not any benefit from the employer which is deducted from the salary. this amount is the actual contribution of the employee throughout the year.

This Monthly pension is received by the employee throughout his life till death. Sometimes after his death, his legal representatives also receive this pension with some conditions.

Concept of Pension

Some Peoples think that pension is the money which gives employment to his employee this concept is totally wrong. Pension is actually the Savings of Employee which he deducts from his salary throughout the year and after his employment, a huge amount is made.

Tax Treatment of Pension?

Every Government receives a pension and this is the tax treatment of pensions with some Conditions.

  • Pension is totally exempt from tax after his retirement.
  • Pension is Totally taxable with one condition that if the employee after retirement from his employment works for the same employer then all the amount of pension will be taxable.
  • If the person after his retirement from his employment receives more than one pensions then the higher amount pension will be exempt and other pensions will be taxable.
  • All pensions will be exempt if the person's age is more than 60 years. either he receives more than one pension.

What is Commutation of pension?

Commutation of pension means all the pension the employee will receive in one full and final amount from his employer either to receive on monthly basis.

Commutation is the total amount of money the employee receives from his employer.

If the employee receives the whole pension in one full and final amount then there is no pension he receives on monthly basis. 

commutation of Pension fund

Tax Treatment of commutation of Pension

  • if the employee is a government employee then the whole pension will be Exempt.
  • If the pension is received by the employee under an approved pension scheme then the pension will be fully exempt.
  • if the pension is received by the employee from his employer from an unapproved pension scheme then the pension is exempt up to 75000 or 50% of the pension received. whichever is lower will be taxable.