How To Show Retirement Benefits In ITR?

How To Show Retirement Benefits In ITR?

Filing your Income Tax Return (ITR) after retirement can feel confusing, especially when it comes to reporting pensions and other retirement benefits. This type of income normally classifies under the “Income from Salaries” category. However, their taxable or exempt status can determine how you report them. Here is a brief guide you can use to go about it the right way: 

Reporting Income Received From Pension

1. Regular (Uncommuted) Pension:

   Your monthly pension is treated like your salary and is fully taxable. While filing your ITR, select “Pensioners” under “Nature of Employment” and enter your former employer’s details such as their name and TAN.

2. Commuted (Lump-sum) Pension:

   If you receive a lump-sum pension, it’s called a commuted pension. 

   • Government employees: The full amount is exempt from tax.
   • Other employees: Only a portion is exempt as per Income Tax rules.

The exempt part should be shown under “Exempt Income – Any Other”, while the taxable portion goes under “Salary under Section 17(1)” as “Annuity Pension”.

Reporting Other Retirement Benefits

1. Gratuity:

   A gratuity is a one-time payment received at retirement.

   • Government employees: Fully tax-free.
   • Other employees: Partially exempt, depending on whether you’re covered under the Payment of Gratuity Act, 1972.

   The taxable part goes under “Income from Other Sources”, and the exempt part should be reported in the Exempt Income section.

2. Provident Fund (PF):

   • Recognised PF (RPF): Withdrawals are tax-free if you’ve completed five years of continuous service.
   • Public PF (PPF): Always fully exempt from tax.

3. Leave Encashment:

   • Government employees: Fully tax-exempt.
   • Other employees: Leave encashment for non-government employees is only partially exempt. The rest of the amount should be filed in as taxable salary income.

Filing Your ITR: Key Steps

1. Choose the Right ITR Form:

   • Pension and interest income require you to use the form ITR-1 (Sahaj).  if your income is mainly from pension and interest.
   • For capital gains, business income, or extra house property, using ITR-2 is the correct option. 

2. Report Accurate Income:

   Enter all taxable portions under the correct income heads.

3. Disclose Exempt Income:

   Always mention tax-free benefits in the “Allowances exempt u/s 10” section of Schedule S.

4. Claim Deductions:

   • Section 80C: For ELSS, life insurance, and 5-year deposits.
   • Section 80D: Applies to premiums paid for health insurance.
   • Section 80TTB: Upto ₹50,000 deduction on income through interest for senior citizens.

Final Tip

Ensure that all of your entries are thoroughly double-checked and verified before you submit your ITR. A Correct report of taxable income and exempt amounts leads to smooth processing of your ITR and avoids you getting notices from the tax department. If you need help with filing tax, use a tax-filing platform or consult a financial professional.