Family Pension Taxable as “Other Income”, TDS u/s 192 of Income Tax Act Not Applicable: CBDT Clarifies

In a circular clarifying the rates and other important issues in connection with the Tax Deduction at Source (TDS) on salaries, the Central Board of Direct Taxes ( CBDT ) has clarified that TDS need not be deducted on receipt of family pension by a person as the same is taxable as “income from other sources” under the Income Tax Act, 1961.

In a circular issued on Wednesday, the CBDT clarified that “It may be noted that, since salary includes pension, tax at source would have to be deducted from pension also, unless otherwise so required. However, no tax is required to be deducted from the commuted portion of pension to the extent exempt under section 10 (10A). Family Pension is chargeable to tax under the head “Income from other sources” and not under the head “Salaries”. Therefore, provisions of section 192 of the Act are not applicable. Hence, DDOs are not required to deduct TDS on family pension paid to person.”

For any income to be called as Salary, the existence of employer-employee relation is must.

Family Pension paid as regular monthly income (uncommuted pension) by the employer to a family member of an employee in the event of his/ her death. Family Pension is taxable after allowing a standard deduction of 33.33% or Rs. 15000, whichever is less.

Commuted pension received by family members is exempt from tax. However, in case of uncommuted pension received by family members, a sum equal to 33.33% of such income or ₹ 5,000, whichever is less, is exempted from tax.

In case of family pension, since there is no employer-employee relationship between the payer and the payee, therefore, it is taxed as 'Income from Other Sources' in the hands of the nominee(s).

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