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Time of India
4 days ago
- Business
- Time of India
Commuted pension from pension funds to get full tax deduction clarifies new version of income tax bill
Tired of too many ads? Remove Ads New Tax Bill 2025 Who are considered as non-employees for the purpose of commuted pension under new tax bill 2025? Tired of too many ads? Remove Ads Popular in Wealth 1. No income tax rebate under Section 87A even if income is less than Rs 7 Lakh under new tax regime in this situation, point out CAs What are the different types of pension schemes that qualify as eligible pension schemes under the Income Tax Act? The new version of the income tax bill 2025 has explicitly allowed the entire amount of commuted pension as a tax deduction for those taxpayers who receive the pension from a specified fund as mentioned in Schedule VII of Income Tax Bill, 2025 like the LIC Pension fund , etc. Commuted pension means a lumpsum payout of the the earlier version this tax deduction for commuted was not explicitly clarified. Therefore, the Lok Sabha Select Committee said :'The Committee, after a careful review of Clause 19, identified a gap in the equitable tax treatment of commuted pension for different types of recipients. The Committee, therefore, recommended that a deduction for commuted pension, similar to that available to employees under Clause 19, be explicitly allowed under the head "Income from other sources" for non-employees who receive such pension from a fund. Accordingly, the Committee finds no further modifications are necessary for Clause 19 and recommend the acceptance of its remaining provisions as drafted.'Chartered Accountant (Dr.) Suresh Surana explains that in the context of Clause 93(1)(g) of the Income-tax Bill, 2025, the term 'non-employees' may reasonably extend to include individuals such as private sector employees whose employers do not operate a pension scheme or fund, but who have independently invested in an approved pension fund such as the LIC Pension Fund or similar notified funds under clause 10 (23AAB) of the Income-tax Act, to Dinkar Sharma, Company Secretary and Partner, Jotwani Associates, non-employees in the context of the tax bill 2025 can mean independent professionals, legal heirs, nominees, or other recipients who are not in an employer-employee relationship with the pension contributing explains: 'The Committee's recommendation is instead focused on non-employees—individuals who receive commuted pension from an approved fund but are not employees of the organization responsible for setting up or funding the pension scheme. These could include dependents, nominees of deceased pensioners, or beneficiaries under a group insurance-linked pension plan who are not themselves in a contract of employment with the employer. In such cases, the pension income is currently taxed fully under the head 'Income from other sources' because there is no provision analogous to Section 10(10A) for them.'Sharma explains: 'Under the Income Tax Act, 1961, certain pension schemes are considered 'eligible' for the purpose of availing tax exemptions on commuted pension amounts under Section 10(10A).'According to Sharma, the three broad categories of pension are:Pensions received by employees of the Central or State Government are fully exempt from tax when commuted, as per Section 10(10A)(i). This includes civil service retirees, armed forces personnel, and those directly employed under statutory departments or ministries. Since these employees serve the government directly, they receive full exemption without any limit on the quantum of the commuted pension.: For non-government employees, including those from the private sector, the exemption applies only if the pension is received from a recognized superannuation fund. These are employer-managed funds approved by the Commissioner of Income Tax under the Income Tax Rules, typically funded during an employee's tenure. As per Section 10(10A)(ii), if gratuity is also received, only one-third of the commuted pension is exempt; if gratuity is not received, one-half of the commuted amount is Section 10(10A)(iii), employees receiving pension from an approved pension fund set up by a life insurer (such as LIC or other registered insurers offering group pension schemes) are also eligible for exemption on the commuted portion, subject to specific conditions and approvals granted to the fund under the Income Tax Rules.
Mint
01-08-2025
- Business
- Mint
Income Tax: Avoid these 4 common mistakes that taxpayers make while filing ITR
Income Tax: With only 45 days left to meet the September 15 deadline to file income tax return (ITR) for FY2024-25, taxpayers are busy sourcing the correct information and documents required to file their return well on time. It is worth mentioning that the income tax department on July 30 released the online utility for ITR-3 whereas ITR-2 was enabled on July 17, to be filed through online mode with prefilled data. The Excel utilities for these forms were released early last month. When filing the income tax return, salaried taxpayers do not have to do much, other than arrange Form 16 (issued by the employer) and an interest certificate (issued by the bank). However, if you have multiple sources of income, including from house property, capital gains, self-employment, or other sources, it is recommended that you seek the professional advice of a chartered accountant or an income tax expert. But if you are a DIY person, then you can definitely give it (ITR filing) a go, but make sure that you do not commit any of the oft-repeated mistakes. Here, we list some of the common mistakes that taxpayers make. I. Choosing the right tax regime: First and foremost, taxpayers must choose the right tax regime, which leads to lower tax outgo. One can even use an income tax calculator on the income tax website to compare the tax component under both regimes. 'Many taxpayers either default to the new regime without analysis or continue with the old regime out of habit. This oversight often leads to incorrect tax computation, avoidable excess tax payments, or mismatches during return processing by the Income Tax Department. In the last one or two assessment years, a growing trend has been observed among individual taxpayers—especially salaried employees—of failing to evaluate which income tax regime is more beneficial for them,' says Dinkar Sharma, Partner, Jotwani Associates. II. Not reporting gains from trading: Another mistake to avoid is not reporting capital gains earned from trading in securities. 'Several salaried taxpayers with investments in shares and mutual funds also forget to incorporate capital gains earned from trading or redemptions. This typically happens when the taxpayer has passive investments and does not actively track transactions. However, with the introduction of the Annual Information Statement (AIS), such gains are now more easily detected by the tax department, and non-disclosure can trigger automated notices,' explains Dinkar Sharma of Jotwani Associates. III. Failure to e-verify the return: Another important thing to remember is to e-verify the return. Taxpayers must make sure that they do not skip e-verification. 'One of the most common mistakes which taxpayers tend to make is to skip the e-verification. If it is not done on time, the return gets invalidated after 30 days. Last year, we met a few taxpayers who made this mistake and were later had to pay extra tax since the previous return got invalidated. And the new return - once the deadline expires -- can be filed under the new tax regime only, rendering their claimed exemptions invalidated,' says Chirag Chauhan, a Mumbai-based chartered accountant. IV. Failure to claim exemption: At times, taxpayers earn capital gains and reinvest some of the gains but forget claiming the exemption. 'It is not uncommon among taxpayers to fail to claim exemptions under relevant sections such as 54, 54EC, or 54F. These exemptions are available when capital gains are reinvested in residential property or certain specified bonds. However, failure to reinvest within prescribed timelines, or to follow the procedural conditions, can result in denial of exemption and an inflated tax bill,' adds Dinkar Sharma of Jotwani Associates. CA Chirag Chauhan believes that the current deadline (September 15) is very near, and it will help if the Central Board of Direct Taxes (CBDT) extends it. 'Effectively, only one and a half months are remaining before the deadline ends on September 15. And with the kind of information that is required to be submitted under the old tax regime, this time period is not sufficient. Only two days ago, the tax department released ITR-3 for online filing. Given all this, I think that the deadline should be further extended to October 30,' adds Chauhan. For all personal finance updates, visit here
