The rules for Tax Deduction at Source (TDS) on pension for the financial year 2024-25 and assessment year 2025-26 came into effect on April 1, 2024.
These changes aim to simplify the tax system and provide more benefits to pensioners. The updates include a higher standard deduction limit and increased exemptions on family pension.
What is TDS on Pension?
TDS on pension refers to the tax deducted in advance from pension payments by the government. The rate of TDS depends on the pensioner’s total income and the applicable tax slab.
It is important for pensioners to correctly calculate their income and investments to ensure the correct TDS rate applies.
New TDS Rates Under the New Tax Regime
Here are the TDS rates for pensioners under the new tax system:
No TDS for annual pension up to ₹3,00,000.
5% TDS for annual pension between ₹3,00,001 and ₹6,00,000.
10% TDS for annual pension between ₹6,00,001 and ₹9,00,000.
15% TDS for annual pension between ₹9,00,001 and ₹12,00,000.
20% TDS for annual pension between ₹12,00,001 and ₹15,00,000.
30% TDS for income above ₹15,00,000.
These rates apply only under the new tax regime. Pensioners opting for the old tax regime will follow different rates.
Key Benefits in the New Tax System
Increased Standard Deduction Limit
The standard deduction limit for pensioners has been raised from ₹50,000 to ₹75,000. This means pensioners can now deduct ₹75,000 from their total pension income, reducing their taxable income.
Higher Exemption for Family Pension
For those receiving a family pension, the deduction limit has increased from ₹15,000 to ₹25,000, offering greater relief to families relying on family pension.
Special Provisions for Senior Citizens
The new rules provide additional benefits for senior citizens aged 60 and above:
No TDS for income up to ₹3,50,000 for those aged 60 to 80 years.
No TDS for income up to ₹5,00,000 for those above 80 years.
Deduction up to ₹50,000 on medical insurance premiums.
These measures aim to lower the tax burden for senior and super senior citizens.
Choosing Between New and Old Tax Regimes
Pensioners can choose between the new and old tax regimes based on their financial situation:
Benefits of the New Tax Regime
1) Lower tax rates.
2) Simplified and transparent process.
3) Higher standard deduction.
Benefits of the Old Tax Regime
1) More deductions and exemptions.
2) Better suited for higher-income pensioners.
Selecting the right regime depends on your income and investment plans.
Filing TDS Returns
TDS returns must be filed quarterly by the pension payer using Form 26Q on the Income Tax Department website. Accurate and timely filing fulfills legal requirements and ensures relief for pensioners.
How Pensioners Can Save Tax
Here are some ways pensioners can reduce their tax liability:
1) Invest in the National Pension Scheme (NPS).
2) Opt for tax-saving fixed deposits.
3) Avail the benefit of medical insurance premiums.
4) Claim deductions for donations under Section 80G.
5) Invest in government bonds.
