Is Family Pension Taxable in India? Exemptions, Rates & Filing Tips

Family pension plays a crucial role in ensuring financial stability for dependents after the death of an employee or pensioner. While it serves as a lifeline for families, one pressing question remains—is family pension taxable in India? Understanding the taxability, exemptions, rates, and filing requirements is essential to avoid errors and reduce tax liability.

This article provides a comprehensive guide on family pension taxation rules in India, covering exemptions, applicable tax rates, deductions, filing process, and practical examples.

Introduction: What is Family Pension & Who Receives It?

A family pension is a regular payment made by an employer, government, or pension fund to the surviving family members (such as spouse, children, or dependent parents) of a deceased employee or pensioner.

• In government service, family pension is provided to the widow/widower, minor children, or dependent parents of a government employee after their death.
• In the private sector, family pension is offered under schemes like the Employees’ Pension Scheme (EPS) or through employer-contributed pension funds.

👉 For a broader understanding of pensions and their taxability, you may read: Income Tax on Pension – What Is Taxable & What You Can Exempt.

Is Family Pension Taxable? Legal Framework

Yes, family pension is taxable in India. However, unlike regular pension, which is treated as salary income, family pension is taxed under a different head.

• Head of Income: Family pension is specifically taxed under “Income from Other Sources” (Section 56 of the Income Tax Act, 1961).
• Why different treatment? Since family pension is received by legal heirs (not earned by the deceased employee directly), it does not qualify as salary income.

Thus, while the recipient benefits financially, they must declare family pension in their Income Tax Return (ITR) under the other sources category.

Exemptions Available for Family Pension

The Income Tax Act provides limited exemptions on family pension income.

• Deduction under Section 57(iia): The recipient can claim the lower of:
  • ₹15,000, or
  • One-third (1/3rd) of the family pension received

This is a flat deduction available only for family pension.

📌 Example:

• If family pension received = ₹90,000 annually
• 1/3rd of ₹90,000 = ₹30,000
• Deduction allowed = Lower of ₹15,000 or ₹30,000 → ₹15,000
• Taxable family pension = ₹90,000 – ₹15,000 = ₹75,000

Applicable Tax Rates on Family Pension

Family pension is taxed as per the individual’s applicable income tax slab rates. There are no special or concessional tax rates for family pension.

• Old Tax Regime: Progressive slab system with deductions and exemptions.
• New Tax Regime (post Budget 2023): Lower slab rates but limited exemptions (Section 57 deduction is still available).

📌 Note: If the recipient has no other income, and total family pension after deduction is below the basic exemption limit (₹2.5 lakh for individuals below 60 years), no tax is payable.

How to File for Family Pension: Process & Important Documents

Filing taxes for family pension requires careful disclosure under the correct head of income.

Filing Process:

1. Collect Pension Statement – Obtain a pension statement or bank credit statement showing family pension received.
2. Choose Correct ITR Form – Most recipients file under ITR-1 (Sahaj) if income sources are simple.
3. Declare under Income from Other Sources – Report the gross amount received.
4. Claim Deduction under Section 57(iia) – Deduct ₹15,000 or 1/3rd, whichever is lower.
5. Compute Taxable Income – Add net family pension to other income sources.
6. Pay Taxes & File ITR – Ensure advance tax or TDS is adjusted.

Documents Needed:

• Bank pension statement or credit slips
• Death certificate of deceased employee (for first-time filing)
• Pension order or sanction letter
• Form 16A (if TDS deducted on pension by disbursing bank/authority)

Deduction Limits & Key Sections of Income Tax Act

The following sections govern family pension taxation:

• Section 56(1) – Classifies family pension as 'Income from Other Sources.'
• Section 57(iia) – Provides the flat deduction of ₹15,000 or 1/3rd.
• Section 80C, 80D, etc. – Additional deductions can be claimed if the recipient invests in eligible instruments.

👉 To learn about comparing pension options, check: Difference Between Lump-Sum and Regular Pension Payments.

Practical Examples & Case Studies

Case Study 1: Widow Receiving Government Family Pension

• Annual Family Pension = ₹1,20,000
• Deduction under Section 57(iia) = ₹15,000
• Taxable = ₹1,05,000
• Since below basic exemption limit, no tax payable.

Case Study 2: Dependent Son with Other Income

• Family Pension = ₹2,40,000
• Deduction = ₹15,000 (since 1/3rd = ₹80,000 > ₹15,000)
• Taxable = ₹2,25,000
• Other Salary Income = ₹5,00,000
• Total Taxable = ₹7,25,000 → taxed as per slab.

Case Study 3: Widow with Senior Citizen Status

• Family Pension = ₹3,60,000
• Deduction = ₹15,000
• Taxable = ₹3,45,000
• Basic exemption for senior citizen = ₹3,00,000
• Taxable portion = ₹45,000 → taxed as per slab.

Common Mistakes & Tips to Reduce Tax Liability

Common Mistakes

• Declaring family pension under Salary Income (incorrect).
• Forgetting to claim Section 57(iia) deduction.
• Not considering senior citizen exemption limits.
• Missing TDS adjustments when filing returns.

Tips to Reduce Tax Liability

• Opt for old regime if you have multiple deductions (80C, 80D, 80TTB).
• Utilize senior citizen benefits if eligible.
• Invest part of pension in tax-saving instruments like ELSS, NPS, or life insurance.
• Seek professional tax planning advice if pension is a primary income source.

👉 For personalized planning, you may refer to: Best Type of Pension Plan for Your Retirement.

Conclusion & Action Plan

To summarize:

• Is family pension taxable? Yes, under Income from Other Sources.
• Exemption available? Yes, flat deduction of ₹15,000 or 1/3rd, whichever is lower.
• Tax rates? Taxed as per normal slab rates.
• Filing requirement? Mandatory if income exceeds exemption limits.

Action Plan:

• Identify the total family pension received.
• Claim Section 57(iia) deduction properly.
• Compute net taxable income under “Other Sources.”
• File using correct ITR form and attach pension details.

Recommendations for MetLife Plans

While family pension provides a safety net, it may not be sufficient to secure long-term financial goals. PNB MetLife offers life insurance and retirement solutions that can enhance financial security:

1. PNB MetLife Guaranteed Future Plan – A savings and protection plan offering guaranteed lump-sum or income benefits, which can support family financial security but is not a pension product.
2. PNB MetLife Saral Pension Plan – Helps you secure retirement through annuity options, providing systematic income post-retirement.
3. PNB MetLife Mera Term Plan Plus – A flexible term insurance plan with life cover, joint protection, and riders, which can protect family finances but does not provide pension-like income.

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