The updated rules for Tax Deduction at Source (TDS) on pension came into effect on April 1, 2024, for the financial year 2024-25 and assessment year 2025-26.
These changes aim to make the tax process easier and provide more benefits to pensioners, such as a higher standard deduction limit and better exemptions for family pension.
What Is TDS on Pension?
TDS on pension is the tax deducted from pension payments before they are received. The rate of TDS depends on the pensioner’s total income and the applicable tax slab.
Pensioners need to accurately calculate their income and investments to ensure the right TDS rate applies.
New TDS Rates Under the New Tax Regime
Under the new tax regime, the following TDS rates apply:
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 only apply under the new tax system. Pensioners using the old tax regime will follow different rates.
Key Benefits in the New Tax System
Higher Standard Deduction
The standard deduction limit has been increased from ₹50,000 to ₹75,000. This allows pensioners to reduce their taxable income by ₹75,000.
Increased Family Pension Exemption
For those receiving family pensions, the deduction limit has gone up from ₹15,000 to ₹25,000, providing more relief to dependent families.
Special Provisions for Senior Citizens
Senior citizens receive additional benefits:
No TDS for annual income up to ₹3,50,000 (ages 60-80).
No TDS for annual income up to ₹5,00,000 (ages 80+).
Deduction of up to ₹50,000 on medical insurance premiums.
These changes aim to lower the tax burden for senior and super senior citizens.
Choosing Between the New and Old Tax Regimes
Pensioners can choose between the two tax regimes based on their financial situation:
New Tax Regime Benefits
1) Lower tax rates.
2) A simpler and more transparent process.
3) A higher standard deduction.
Old Tax Regime Benefits
1) More deductions and exemptions.
2) Better suited for higher-income pensioners.
The right choice depends on your income and investment plans.
Filing TDS Returns
The pension payer must file TDS returns quarterly using Form 26Q on the Income Tax Department website. Filing returns on time ensures compliance and relief for pensioners.
Tips for Pensioners to Save Tax
Here are some ways pensioners can reduce their tax liabilities:
1) Invest in the National Pension Scheme (NPS).
2) Use tax-saving fixed deposits.
3) Avail deductions for medical insurance premiums.
4) Claim deductions for donations under Section 80G.
5) Invest in government bonds.
