ITR Filing 2026: Pension is treated as salary, but Family Pension is not! Know these 5 major tax rules before filing your return..

For crores of Indians, the pension received after retirement constitutes the primary source of regular income. However, when it comes to filing Income Tax Returns (ITR), the most common error occurs in correctly classifying this income under the appropriate head.

Many individuals assume that the tax treatment for both a regular pension and a family pension is identical. In reality, however, the Income Tax Act treats these two categories differently. Consequently, due to a lack of accurate information, issues such as receiving tax notices, incorrect tax refunds, or making excess tax payments often arise.

Before filing their ITR for Assessment Year (AY) 2026-27, every pensioner and family pensioner should familiarize themselves with these rules.

**Are the Tax Rules for Regular Pensions and Family Pensions Different?**
Yes. Under the Income Tax Act, a regular pension is classified as "Income from Salary" and is eligible for a Standard Deduction. Conversely, a family pension is classified as "Income from Other Sources"; therefore, it is not eligible for the Standard Deduction, but rather qualifies for a specific deduction available under Section 57(iia).

**Why is a Pension Still Classified as a Salary?**
According to Section 17(1) of the Income Tax Act, a pension is explicitly included within the definition of "Salary." The rationale is clear: a pension is disbursed by a former employer. It stems from a pre-existing employer-employee relationship. Consequently, it is treated as salary income. As a result, pensioners are entitled to certain tax benefits that are typically available to salaried employees.

**How ​​Much Standard Deduction Are Pensioners Entitled To?**
**Old Tax Regime**

Standard Deduction of up to ₹50,000
OR the actual amount of Salary/Pension received—whichever is lower.

**New Tax Regime**

Standard Deduction of up to ₹75,000
OR the actual amount of Salary/Pension received—whichever is lower.
**Why is a Family Pension Not Classified as a Salary?**
This is where the most confusion typically arises. The amount received by a spouse or legal heir following the demise of an employee or pensioner is termed a "Family Pension." Since there is no employer-employee relationship between the recipient of the pension and the disbursing entity, this income is not classified as a salary. This is subject to tax. This income is taxable under the head 'Income from Other Sources'.

What deductions are available on family pension?
Family pensioners are not eligible for the Standard Deduction; however, a specific deduction is available under Section 57(iia).

Old Tax Regime

Deduction = 1/3rd of the family pension or ₹15,000—whichever is lower.

New Tax Regime

Deduction = 1/3rd of the family pension or ₹25,000—whichever is lower.

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