Normally it is an annual income received by the employee from his employer or it is a reward of his life time services which was given by him to the organization.
As Per section 17(1) (ii) of the Income Tax Act, 1961 Annuity or Pension is payment which is made by the employer to the employee after retirement/death of the employee as a reward for services performed in the organization.
Annuity or pensions are of two types:
- Commuted pension: where a lump sum amount is paid to the employee. Commuted pension is exempt in case of Govt. employee and for others employees it is taxable based on the receipt of gratuity.
- Uncommitted pension: where the employee is paid periodically i.e. on a monthly basis. It is taxable in case of both govt. and non govt. employee.
Reference: – As Per Section 17(1) (ii) Of the Income Tax Act, 1961
For the purposes of sections 15 and 16 and of this section,—
“Salary” includes—
- Wages
- Any annuity or pension
- Any gratuity
- Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages
- Any advance of salary
- Any payment received by an employee in respect of any period of leave not availed of by him
- The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule
- The aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and
- The contribution made by the Central Government or any other employer] in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD.