Many people remain confused about the tax rules on the income they receive every month in the form of annuity. Manoj Sharma, a resident of Noida, also has some confusion about annuity income. He has asked that he gets Rs 10,122 every month as annuity from LIC. This annuity was purchased with the money received from the employer on retirement. He wants to know under which head of income this will be taxed? He also wants to know whether he can claim standard deduction? Moneycontrol asked this question to tax expert, CA and CFP Balwant Jain.
Rules for claiming standard deduction
Jain told that income tax In the old regime, an employee can claim a standard deduction of Rs 50,000 every financial year on income that comes under ‘salaries’. If the employee selects the new income tax regime, he can claim standard deduction of Rs 75,000. Whether the salary is in arrears, advance or current period, standard deduction can be claimed on it. If an employee receives pension from his old employee, it will be taxed as ‘salary’.
Tax rules on annuity purchased from money received from employer
He said that after retirement, if a person receives income from his employer or any other source, it will be taxed under the ‘Salary’ head. The taxpayer can claim standard deduction on such pension income. Similarly, if a retired person receives pension from an annuity purchased by the employer from EPFO or any insurance company, then it will be taxed under ‘Salary’. The person can claim standard deduction on it. Therefore, Manoj Sharma will have to pay tax on the annuity received from LIC. He can claim standard deduction.
Different tax rules on annuity purchased with one’s own money
Jain said that it is a matter to be kept in mind that any periodic payment which is received in the form of pension from annuity but the annuity is not purchased on behalf of your employer but is purchased on your own behalf or on behalf of some other person, then it will not be taxed under ‘salary’. It will be taxed under ‘Income from other sources’. Then you will not be able to claim standard deduction on this income.