Family Pension Taxation: Section 57(iia) Standard Deduction Explained
When a government or private sector employee passes away, their spouse or dependent often continues to receive a monthly 'family pension' from the employer or pension fund. This income is taxable - but not in the same way as the employee's own pension was, and a special deduction under Section 57(iia) can reduce the tax bill.
What is Family Pension?
Family pension is a periodic payment made to the family members (typically the spouse, and in their absence, children or dependent parents) of a deceased government employee, PSU employee, or in some cases private sector employees covered under specific pension schemes (such as EPS - Employees' Pension Scheme). It is distinct from the pension the employee would have received during their own lifetime.
How Family Pension is Taxed
Unlike the employee's own pension - which is taxed as 'Salary' income (since it arises from past employment of the recipient) - family pension received by a legal heir after the employee's death is taxed as 'Income from Other Sources', because the recipient never had an employer-employee relationship with the entity paying the pension.
| Particulars | Employee's Own Pension | Family Pension (after death) |
|---|---|---|
| Head of Income | Salary | Income from Other Sources |
| Standard Deduction | Rs 75,000 (new regime) / Rs 50,000 (old regime) under Section 16(ia) | Lower of Rs 25,000 (old regime) / Rs 15,000 (legacy) or 1/3rd of pension under Section 57(iia) |
| Form 16 issued? | Yes, by employer/pension disbursing bank | No - reported directly in ITR under 'Other Sources' |
Section 57(iia) Deduction
Section 57(iia) allows a deduction from family pension equal to the lower of 1/3rd of the family pension received, or a specified monetary cap. This deduction was historically capped at Rs 15,000, and was revised to Rs 25,000 for family pensioners under the new tax regime from FY 2023-24 onwards (aligned with the broader push to make the new regime more attractive). Under the old regime, the cap generally remains Rs 15,000 unless updated by subsequent Finance Acts - always verify the applicable cap for the relevant assessment year.
Exemption for Family Pension of Armed Forces / Gallantry Award Winners
Family pension received by the widow, children, or nominated heirs of a member of the armed forces (including paramilitary forces) who died in the course of operational duty is fully exempt under Section 10(19), regardless of amount. This exemption is specific to defense and certain paramilitary personnel and does not apply to general government or private sector family pensions.
Uncommuted vs Commuted Family Pension
- Uncommuted family pension (received periodically, e.g., monthly) is taxable as described above, with the Section 57(iia) deduction available
- Commuted family pension (a lump sum received in lieu of part of the periodic pension) is generally fully exempt for family pensioners, similar to the treatment of commuted pension for the original employee under Section 10(10A)
TDS on Family Pension
TDS on family pension disbursed through banks (common for government family pensions paid via nationalized banks) is governed by Section 194P / general TDS provisions depending on the disbursing entity. If your total income including family pension is below the taxable threshold, you can submit Form 15G/15H to the disbursing bank to avoid TDS.
Reporting in ITR
- Report the gross family pension received under 'Income from Other Sources' in Schedule OS
- Claim the Section 57(iia) deduction (lower of 1/3rd or the applicable cap) as a deduction against this income - this is entered separately, not clubbed with the standard deduction available to salary/pension of the original employee
- If the family pension is from the armed forces death-in-service category, report it under 'Exempt Income' schedule instead, citing Section 10(19)
- Use ITR-1 if family pension is the only or primary income along with limited interest income; ITR-2 if there are capital gains or other complexities