If you are a pensioner and are going to file Income Tax Return (ITR) for the financial year 2025-26 (Assessment Year 2026-27), then it is very important for you to know that the standard deduction of ₹ 75,000 is not available on every type of pension. This benefit depends on which category your pension has been placed in under the Income Tax Law. According to tax experts, standard deduction can be claimed on EPFO’s Employees’ Pension Scheme (EPS), pension received from former employer and pension received from corporate NPS. However, this discount is not available on annuities purchased from individual NPS or LIC.
How much benefit will be available in the new and old tax system?
Eligible pensioners opting for the new tax regime can get standard deduction up to a maximum of ₹75,000. At the same time, for those adopting the old tax system, this limit is ₹ 50,000. However, if the pension amount is less than this, then deduction will be available only up to the actual pension amount.
Which pensioners will get standard deduction?
According to Mumbai-based tax and investment expert Balwant Jain, pension received under Employees’ Pension Scheme (EPS), pension received from former employer and pension received from corporate NPS are taxed under ‘Salary’ in Income Tax. Since they are taxed like salary, such pensioners are eligible to avail the benefit of standard deduction.
In which cases will this exemption not be available?
If a person receives income from annuity purchased from an individual NPS account or annuity purchased from the maturity amount of a LIC policy, then standard deduction will not be available on the same. The reason for this is that such income is taxed under ‘Income from Other Sources’ and not under ‘Salary’.
There is also a special exception
If an annuity has been purchased for an employee by his employer as a retirement benefit, then the pension received from that annuity will be considered as salary income. In such cases, pensioners can claim standard deduction as per the new or old tax regime.
Please check before filling ITR
Experts say that before filing ITR, pensioners must check under which head their pension or annuity is being taxed. Not only the source of the pension but its tax treatment decides whether standard deduction is available or not. Filing ITR with correct information will also save tax and avoid any kind of trouble later.
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