How is retirement income like pension or gratuity taxed?

Pension received from a former employer is taxable as salary income. However, commuted pension received as a lump sum is partly exempt under Section 10(10A). Gratuity received at the time of retirement is exempt up to the least of actual amount received, 15 days’ salary for each completed year of service, or the statutory limit (currently Rs. 20 lakhs).

Legal Provisions: Sections 10(10), 10(10A), 10(10AA), and 17(1)(iii) of the Income Tax Act, 1961

Supporting Case Law:
-Rama Bai v. Union of India (2009) – Supreme Court – 318 ITR 225
– Link: https://indiankanoon.org/doc/106103/
– Ratio: This case discussed the taxability of pension and gratuity receipts under the Income Tax Act.

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Prashant Thakur

The author has spent more than 30 years in the field of taxation. Wrote four books -3 on on Indian Tax Law and 1 on US tax law for cryptocurrency. Apart from https:taxworry.com , he also writes on https://irstaxapp.com which is for US tax laws. He is a tech enthusiast and manages a cloud computing company that publishes innovative software.