explain PENSION under income tax
Pension is described in section 60 of the CPC and section 11 of the Pension Act
as a periodical allowance or stipend granted on account of past service, particular merits etc. Thus monthly allowance to the younger brother of a ruler was treated as a maintenance allowance and not pension (Raj Kumar Bikram Bahadur Singh Vs. CIT 75 ITR 227(MP)).
There are three important features of ‘pension’.
Firstly, pension is a compensation for past service.
Secondly, it owes its origin to a past employer- employee or master-servant relationship.
Thirdly, it is paid on the basis of earlier relationship of an agreement of service as opposed to an agreement for service.
This relationship terminates only on the death of the concerned employee. Pension received from a former employer is taxable as ‘Salary’. Hence, the various deductions available on salary income, including relief u/s 89(1) for the arrears of pension received would be granted to pensioners who received their pension from, a nationalised bank and in other cases their present Drawing & Disbursing Officers. Similarly, deductions from the amount of pension of standard deduction and adjustment of tax rebate u/s 88 and 88B shall be done by the concerned bank, at the time of deduction of tax at source from the pension, on furnishing of relevant details by the pensioner. Instructions in above regard were issued by R.B.I.’s Pension Circular (Central Service No. 7/C D.R./ 1992(Ref. No. DGBA:GA(NBS) No. 60/GA64-(II CVL-91-92 dated 27.4.92).