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.
- Uncommuted 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,—
(1) “salary” includes—
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) any advance of salary;
(va) any payment received by an employee in respect of any period of leave not availed of by him;
(vi) 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;
(vii) 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
(viii) 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;