Pension is a periodical payment received by the employee from the employer after he ceases to be the employee. It is taxed as Salary.

Calculation of pension is done in two forms:

★ Uncommuted Pension - is regular periodical pension to employee which is taxable to all kinds of employees.

★ Commuted Pension is a lump sum payment in lieu of periodical pension.

★ If such pension is received by government employee then it is wholly exempt.

Non government employees can avail exemption to a certain extent:

★ If employee is in receipt of gratuity, 1/3 of commuted value.

★ If not, then one half of commuted value.