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Tax treatment on family pension

(Querist) 14 October 2012 This query is : Resolved 
Dear Sirs.

My mother who is 52 year old is recieving monthly pension of Rs 40000 after my father's death who was a reader in degree college.

I want to know about the tax saving possibilities allowed as per Income tax rules for FY12-13 and total tax applicable after all deductions.
A V Vishal (Expert) 14 October 2012
Family Pension received by the family members – It is taxable in the hands of recipients u/s 56 under the head “Income from other sources”. Standard deduction is available u/s 57 which is one-third of such pension or Rs. 15,000, whichever is lower.

Other sources of Income not known so liability of tax cannot be computed, Sec 80C of the Income Tax Act is the section that deals with these tax breaks. It states that qualifying investments, up to a maximum of Rs. 1 Lakh, are deductible from your income. This means that your income gets reduced by this investment amount (up to Rs. 1 Lakh), This benefit is available to everyone, irrespective of their income levels.
Ms.Nirmala P.Rao (Expert) 15 October 2012
Dear Client,

Family pension also is taxable over and above Rs.2,00,000/-. But if she wisey invests it under section 80 of Income Tax Act, total exemption limit would further be raised to lakh more. In the Remaining Rs. 1,80.000 she has to pay 10% tax, i.e., Rs.18000 since her pension income falls in the range of Rs.e two Lakhs and Rs.5 Lakhs over which 10 % I.T would be levied including investments under section 80,; thus she has to pay only Rs. 18,000 towards income tax over and above Rs.3 Lakhs.

Ms.Nirmala P.Rao
Legal Expert
rajnish (Querist) 15 October 2012
Dear Mr. AV Vishal/Ms nirmala P Rao.

Thanks for the response. However, I am yet not clear on total tax that can be saved. inorder to make you understand my case completely, here are the details.

My mother who is 52 year old is recieving monthly pension of Rs 4.8 Lacs/Annum after my father's death who was a reader in degree college. She do not have any other source of income. Her Family consist of two sons, one daughter in law and a daughter. Elder son that is me is earning 7 Lacs/ annum and is married. Daughter is unmarried and is earning 1.2 Lacs from a govt job. Younger son is a student and unmarried.

In this case what would be the maximum deductions she can enjoy and which all deductions will be applicable.(ie whether standard deduction of 15000 under sec 57 will be applicable or other deductions under Sec 80C, 80D, 80CCG will also be applicable in addition to the deduction of 15000 on her pension).

Also whether daughter's and son's salary will also be included in other sources of income of the family or they will be treated as seperate tax payers.

A V Vishal (Expert) 15 October 2012
Standard deduction u/s. 57 is applicable, apart from that since your younger brother is a student the tuition fee is deductible u/s. 80, incase of any insurance premia held in her name can also be claimed as deduction u/s. 80C however, the maximum limit being Rs.1.00 Lakh apart from 80 C she can also claim medical insurance premium upto 15000
Saurabh Bajaj (Expert) 15 October 2012
In My opinion, the calculations would be as below:

Deduction of Rs. 15,000 or 1/3rd of monthly pension (whichever is less) = Rs. 13,333.33 p.m.

Thus, total annual income = Rs. (40,000- 13,333.33) X 12 = Rs. 3,20,000.

Out of this, Rs. 1 Lakhs can be saved u/s 80C and Rs. 20,000 can be saved u/s 80CCG. This will make her entire tax liability to be ZERO.

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