Liberalised Family Pension is a scheme that provides financial support to the families of deceased government employees. It is taxable under the Income Tax Act. When the employee dies, the family receives a lump sum payment and a monthly pension. The lump sum payment is not taxable, but the monthly pension is. The monthly pension is taxed as income and the amount of tax depends on the income tax slab of the recipient. If the recipient is above the taxable income bracket, they will not have to pay any tax on the pension. If the recipient is below the taxable income bracket, they will have to pay tax on the pension according to their income tax slab.
Taxation of Liberalised Family Pension
Liberalised Family Pension (LFP) is a pension scheme introduced by the Government of India for the benefit of the families of deceased government employees. It is a tax-free pension that is paid to the spouse and dependent children of the deceased employee. However, there are certain conditions that must be met in order for the LFP to be tax-free.
The following conditions must be met in order for the LFP to be tax-free:
- The deceased employee must have been in government service for at least 10 years.
- The spouse or dependent children of the deceased employee must be financially dependent on the employee.
- The LFP must be paid in a regular manner.
If any of the above conditions are not met, the LFP will be taxable as income. The LFP will be taxed at the marginal tax rate of the recipient.
In addition to the above, there are also certain exemptions and deductions that may be available to LFP recipients. These exemptions and deductions will vary depending on the individual circumstances of the recipient.
If you are receiving an LFP, it is important to consult with a tax professional to determine if your LFP is taxable and to identify any exemptions or deductions that you may be eligible for.
The following table provides a summary of the taxation of LFP:
| Condition | Taxability |
|---|---|
| The deceased employee must have been in government service for at least 10 years. | Non-taxable |
| The spouse or dependent children of the deceased employee must be financially dependent on the employee. | Non-taxable |
| The LFP must be paid in a regular manner. | Non-taxable |
| Any other condition | Taxable |
Eligibility Criteria for Tax Exemption on Liberalised Family Pension
The Liberalised Family Pension (LFP) scheme was introduced by the Indian government to provide financial security to families of government employees. The LFP is exempt from income tax up to a certain limit. To avail this tax exemption, the following eligibility criteria must be met:
- The employee should have been a central government employee or a member of the All India Services.
- The employee should have died while in service or after retirement.
- The family pension should be paid to the spouse, children, or dependent parents of the deceased employee.
- The family pension should not exceed the last drawn salary of the deceased employee.
The tax exemption limit for LFP is as follows:
| Family member | Tax exemption limit |
|---|---|
| Spouse | 12,000 per month |
| Children (each) | 6,000 per month |
| Dependent parents (each) | 6,000 per month |
Any amount of LFP received in excess of the exemption limit is taxable as per the income tax slabs applicable to the recipient.
Taxation of Liberalised Family Pension
Liberalised Family Pension, introduced in 2009, is a revised pension scheme that offers certain tax benefits to family members of deceased government employees.
Taxable Portion of Family Pension
The portion of the liberalised family pension that is taxable depends on the circumstances:
- If the deceased employee retired before 1 January 2016, the entire family pension is taxable.
- If the deceased employee retired on or after 1 January 2016 and opted for the old pension scheme, 60% of the family pension is taxable.
- If the deceased employee retired on or after 1 January 2016 and opted for the new pension scheme, 30% of the family pension is taxable.
However, certain deductions and exemptions can reduce the taxable amount:
Deductions:
- Commutation of pension up to 1/3 of the amount received
- Any other commutation of pension received
- Family pension received from the Armed Forces
- Family pension received from other government sources
Exemptions:
- 50% of the total family pension (applies to family of deceased government employees who died on or after 7th Central Pay Commission)
- An additional exemption of up to Rs. 15,000 per annum for children’s education and/or a disabled family member
The table below summarises the tax treatment of liberalised family pension:
| Date of Retirement | Pension Scheme | Taxable Portion |
|---|---|---|
| Before 1 January 2016 | Old or New | 100% |
| On or after 1 January 2016 | Old | 60% |
| On or after 1 January 2016 | New | 30% |
It is important to note that the taxability of family pension is subject to change based on government regulations and revisions. It is recommended to consult with a tax professional or the Pension Sanctioning Authority for specific guidance and clarifications.
## Exemptions under Section 37 of Income Tax Act
As per the Income Tax Act, 1961, the family pension received by a family member is exempt from income tax up to certain limits under Section 37. This exemption applies to both monthly and lump-sum payments.
### Monthly Payments
- For individuals above the age of 60: Up to Rs. 15,000 per month.
- For individuals below the age of 60: Up to Rs. 10,000 per month.
### Lump-Sum Payments
- For individuals receiving commutation of pension: Up to one-third of the commutation amount is exempt.
- For individuals receiving retirement benefits: Up to the full amount received is exempt, subject to certain conditions.
### Additional Exemptions
| Condition | Tax Exemption |
|---|---|
| Death of the pensioner in harness | Whole of the family pension |
| Pensioner was receiving a disability pension at the time of death | Whole of the family pension |
| Pensioner was suffering from a terminal illness at the time of death | Whole of the family pension |
Well, folks, I hope this little chat about “Is Liberalised Family Pension Taxable” has shed some light on the matter. I know it can be a bit of a mind-bender, but understanding these things is crucial for planning your financial future. If you still have questions, don’t be shy to give us a holler. We’re always happy to help. Keep an eye out for more financial wisdom coming your way. Thanks for stopping by, and until next time, keep your finances in check!