The paying branch is responsible for deduction of Income Tax at source
from pension payments in accordance with the rates prescribed from time
to time. While deducting such tax from pension payments the paying
branch also allow deduction on account of relief available under Income
Tax Act from time to time on production of proper and acceptable
evidence of eligible savings by pensioners. The paying branch also issue
the pensioner in April each year a certificate of tax deducted in the
form prescribed in the Income Tax Rules.
Under section 9(1)(iii), pension accruing is taxable in India only if
it is earned in India. Pensions received in India from abroad by
pensioners residing in this country, for past services rendered in the
foreign countries, will be income accruing to the pensioners abroad, and
will not, therefore, be liable to tax in India on the basis of accrual.
These pensions will also not be liable to tax in India on receipt basis,
if they are drawn and received abroad in the first instance, and
thereafter remitted or brought to India.
It is only in cases where in pursuance of a definite agreement with the
employer or former employer, the pension is received directly by the
pensioner in India that the pension would become taxable in India on
receipt basis.
While the pension earned and received abroad will not be chargeable to
tax in India if the residential status of the pensioner is either
'non-resident' or 'resident but not ordinarily resident', it will be so
chargeable if the residential status is 'resident and ordinarily
resident'. The aforesaid status of 'ordinarily resident' cannot,
however, be acquired by a person unless he has been resident in India in
at least nine out of the preceding ten years.
Note :-
Retirement/death gratuity and the lumpsum amount received on account of
commutation of pension is not taxable under Income Tax Act.
