## Pension — Section 10(10A)

Pension comes in two forms, taxed very differently.

### 1. Uncommuted Pension (periodic monthly pension)

Fully taxable in the hands of both government and non-government employees.

### 2. Commuted Pension (lump sum received by commuting whole/part of pension)

```

Commuted Pension

+-----------------------+------------------------+

| |

Govt / local authority / Other (non-govt)

statutory corporation / employees

civil & defence services

| +---------------------+----------------------+

Fully exempt | |

u/s 10(10A)(i) Also receives gratuity Does NOT receive gratuity

10(10A)(ii)(a): 10(10A)(ii)(b):

1/3 × Full Pension Value exempt 1/2 × Full Pension Value exempt

```

> Full Pension Value = (Commuted pension received ÷ Commutation %) × 100

### Other exemptions related to pension

Supreme Court & High Court Judges are entitled to exemption of the commuted portion u/s 10(10A)(i) (full exemption).
Section 10(18): Pension received by a recipient of a gallantry award (Param Vir Chakra, Maha Vir Chakra, Vir Chakra, or any other notified gallantry award), or family pension received by their family, is exempt — provided the awardee was an employee of the Central/State Government.
Disability pension to armed-forces personnel invalided on account of disability attributable to/aggravated by service is exempt (covers both the service element and the disability element). Personnel who retired normally (e.g. reached retirement age) or left for reasons other than disability are not exempt.
'Family' for 10(18) includes: (a) spouse and children; (b) parents, brothers and sisters wholly/mainly dependent on the individual.

### Regime note

All the above pension exemptions — 10(10A) (commuted) and 10(18) — are available irrespective of the tax regime.

Worked example

### Example 1

Commuted pension — non-govt employee WITH gratuity. A non-government employee commutes 40% of his pension and receives ₹4,00,000. Full Pension Value = (4,00,000 ÷ 40) × 100 = ₹10,00,000. Since he also receives gratuity, exemption = 1/3 × 10,00,000 = ₹3,33,333. Taxable commuted pension = 4,00,000 − 3,33,333 = ₹66,667.

### Example 2

Same facts, NO gratuity. Exemption = 1/2 × Full Pension Value = 1/2 × 10,00,000 = ₹5,00,000. Since the commuted amount received (₹4,00,000) is less than this, the entire ₹4,00,000 is exempt (exemption cannot exceed the amount received).

⚠️ Common exam mistakes

Taxing uncommuted (monthly) pension differently for govt vs non-govt — it is FULLY taxable for both.
Forgetting to gross up to 'Full Pension Value' before applying the 1/3 or 1/2 fraction when only part of the pension is commuted.
Applying 1/3 when no gratuity is received (or 1/2 when gratuity IS received) — gratuity → 1/3 exempt; no gratuity → 1/2 exempt.
Treating a normally-retired soldier's pension as disability pension — disability pension exemption requires invalidation due to service-attributable disability.

Reference: Section 10(10A); Section 10(18) — Income-tax Act, 1961

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Pension — Commuted & Uncommuted [Section 10(10A)]

Worked example

⚠️ Common exam mistakes