The Centre on Thursday clarified that pension received by a taxpayer from their former employers is taxable under the ‘salaries’ head, which meant that such taxpayers were eligible for the ₹40,000 standard deduction announced in the Budget.
“The Central Board of Direct Taxes has clarified that the pension received by a taxpayer from his former employer is taxable under the head ‘Salaries’.
“The Finance Act 2018 has amended Section 16 of the Income Tax Act, 1961 to provide that a taxpayer having income chargeable under the head ‘Salaries’ shall be allowed a deduction of ₹40,000 or the amount of salary, whichever is less, for computing his taxable income,” the government said in a statement. “Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of ₹40,000 or the amount of pension, whichever is less, under Section 16 of the Act,” the statement added.
Finance Minister Arun Jaitley had in his Budget 2018 speech proposed a standard deduction of ₹40,000 to salaried tax payers in lieu of the previous exemption with regard to transport and medical allowances.