Tax: Alert for Pensioners! A Small Mistake Could Increase Your Tax Burden..

The time to file Income Tax Returns has arrived; therefore, pensioners and recipients of family pensions must be aware—before filing their returns—that the income tax rules applicable to income derived from pensions and family pensions are distinct. It is worth noting that many individuals often mistake the income tax rules for pensions and family pensions to be identical; consequently, they face difficulties regarding tax calculation, receiving notices, and obtaining refunds.

**Pension is Treated as Salary**
Under the Income Tax Act, a pension received after retirement is treated as "Salary." The rationale behind this is that it is disbursed by a former employer to an employee and stems from the employer-employee relationship. Consequently, tax on pension income is levied under the head "Income from Salary."

Pensioners are also entitled to the benefit of a Standard Deduction. Under the Old Tax Regime, a Standard Deduction of up to ₹50,000 can be claimed, while under the New Tax Regime, this limit is up to ₹75,000—provided that the actual amount of salary or pension received is not lower than these respective limits.

**Different Rules for Family Pension**
A "Family Pension"—received by a spouse or legal heir following the demise of an employee or pensioner—is *not* treated as salary. Instead, it is categorized under the head "Income from Other Sources."

For this reason, recipients of a family pension are *not* eligible for the benefit of the Standard Deduction. However, a specific deduction is available under Section 57(iia) of the Income Tax Act. Under the Old Tax Regime, a deduction may be claimed for either one-third of the family pension amount or ₹15,000—whichever is lower. Under the New Tax Regime, this deduction is limited to either one-third of the family pension amount or ₹25,000—whichever is lower.

**Relief from Advance Tax for Senior Citizens**
Under Section 207(2) of the Income Tax Act, resident senior citizens aged 60 years or older are exempt from paying Advance Tax, provided that their total income does not include any income derived from a business or profession. However, they are required to pay the entire tax liability at the time of filing their Income Tax Return (ITR). 

Special Provisions for Individuals Over 75 Years of Age
Under Section 194P, certain senior citizens aged 75 years or older may be exempted from filing an Income Tax Return (ITR). To avail of this exemption, their income must be limited solely to pension and interest earned on deposits held in the same bank; furthermore, they are required to submit Form 12BBA to the bank.

Experts advise that, before filing their ITR for Assessment Year (AY) 2026-27, pensioners must cross-verify the information contained in Form 16, the Annual Information Statement (AIS), and Form 26AS. Reporting income under the correct heads can help avoid unnecessary tax disputes and notices.

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